Japan to implement flexible policy if economy risks materialise, draft guidelines show

Pedestrians walking across the scramble crossing at the Shibuya shopping district in Tokyo, Japan.
Pedestrians walking across the scramble crossing at the Shibuya shopping district in Tokyo, Japan.PHOTO: REUTERS

TOKYO (REUTERS) - Japan's government is set to raise the sales tax as planned in October, while it stands ready to take flexible macro-economic policy steps in case risks to the economy materialise, draft mid-year key policy guidelines obtained by Reuters showed.

The draft guidelines, to be formally endorsed by Prime Minister Shinzo Abe's cabinet later this month, also said the government will make "all policy tools" available to help the world's third-largest economy sustain a recovery trend.

The mid-year policy guidelines underscored a balance Abe's government needs to strike between achieving growth and fiscal reform, at a time when an intensifying Sino-US trade war and global slowdown threaten to derail Japan's export-led economy.

"We need to closely watch external developments including trade issues, with exports and output showing weakness despite a gradual recovery seen in Japan's economy," the draft guidelines said. China's economy is slowing and some parts of Europe are showing weakness, it added.

If external risks materialised, that could cause Japan's economic recovery to falter, it said.

On monetary policy, the draft guidelines said the government expects the Bank of Japan to promote easing in order to achieve a 2 per cent inflation target "as early as possible".