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Is Japan still on track for a sales tax hike in October?

More question marks will be raised as the government downgraded its economic assessment to ‘worsening’ based on the latest coincident index reading

ForexLive

That marks the first time the government has chosen to downgrade said assessment of the economy since 2013. The reading fell by 0.9 points from February to its lowest since January, which was then the weakest reading since September 2016.

Japanese lawmakers and policymakers have continued to insist that they will follow through with a sales tax hike in October, barring any ‘Lehman-like collapse’ in the economy. However, given the way economic conditions are developing as of late, it sure looks like they’re really going to be treading on thin ice when the time comes.

Do be reminded that this is the same sales tax hike that was delayed back in 2016 to April 2017 and then subsequently delayed again to October this year. And I would argue that economic conditions are more fragile now than at any time over the past three years.

This will certainly be a bit of an issue if we see the Japanese economy continuing to struggle ahead of Q3 2019. I reckon if things continue to worsen from here, expect lawmakers to be divided on delaying the sales tax hike once again.

For some context as to why this is an issue for Japan, it’s because the last time a sales tax hike was introduced in 2014, it was pretty much the main cause of the economy falling into a technical recession. And since then, Japanese authorities have been keen to avoid another misstep; hence, the delays we have been seeing.

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