Japan has postponed a controversial sales tax hike until October 2019 in a bid to jumpstart lackluster consumer spending in the world’s third-largest economy.
This is the second time Prime Minister Shinzo Abe has postponed the hike, which will lift the tax rate to 10 percent from its current level of 8 percent. Abe explained the reasoning behind the widely expected delay at a briefing on Wednesday.
“We agreed at the Group of Seven summit last week that we had to prepare for the risks facing the world economy and take appropriate measures,” Abe told reporters, according to Japan’s Nikkei. “With regards to that agreement, I have decided to delay the tax hike that would put domestic demand at risk.”
The increase was slated to go into effect in April 2017. It was originally set to kick into effect in October of 2015 but Abe postponed it in late 2014 when Japan fell into an unexpected recession.
Several economists and analysts have warned against a higher tax rate for Japan, which already raised its sales tax rate recently in April 2014, from 5 percent to 8 percent — a move that dented retail sales.
Japanese consumers have been curtailing their purchases recently. Retail sales in Japan fell 0.8 percent in April, the country’s Ministry of Economy, Trade and Industry said Monday.
Japan’s gross domestic product grew an annualized 1.7 percent in the first three months of the year — faster than expected — but many observers are still concerned about the health of the export-driven economy.
Goldman Sachs attributed much of the GDP growth to a combination of factors, including the leap-year effect and the fact that fourth-quarter GDP numbers were revised downward.
Meanwhile, a stronger yen is starting to hurt tourist spending in the country. Last week, the Japan Department Stores Association said its members’ sales to international tourists slid 9.3 percent in April to 17.9 billion yen, or $162.89 million. That marked the first month since January 2013 that sales to international visitors has fallen.