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IMF's negative outlook for Japan could sway decision on sales tax hike

A prediction by the International Monetary Fund (IMF) that Japan will slip into negative economic growth in 2017 could affect the government's decision on whether to raise consumption tax from 8 to 10 percent in April 2017 as scheduled.

The IMF predicted that Japan's real-term gross domestic product (GDP) will contract in 2017, citing the planned sales tax increase as one of the reasons for its projection. Japan is the only developed country that the IMF foresees encountering negative growth next year.

If Japan's GDP actually contracts, it will be the first negative growth since 2014, when the country's consumption tax was raised from 5 percent to the current 8 percent.

The IMF apparently took into account the effects of the previous sales tax hike in making the latest forecast. As such, the IMF has warned that the planned tax increase could adversely affect the economy.

According to the IMF estimate, Japan will likely maintain positive growth in 2016, but the IMF has largely revised downward its prediction of Japan's economic growth, bearing in mind the yen's recent appreciation and the economic slowdown of mainly newly emerging countries. Japan's economic growth potential is remarkably weak among major countries.

The prediction comes as serious warning for the government of Prime Minister Shinzo Abe, which is trying to prop up the economy by implementing an economic policy mix dubbed "Abenomics."

The revised figure of Japan's seasonally adjusted real-term GDP in the October-December 2015 period declined by an annualized rate of 1.1 percent from the previous quarter. Consumer spending, which accounted for roughly 60 percent of Japan's GDP, remained weak, declining by 0.9 percent over the same period.

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