Abe Bets Japan Has Momentum to Power Through Tax Hike

Prime Minister Shinzo Abe is gambling that the economy will be strong enough to withstand another hike in the nation’s sales tax, after an earlier bump in the levy under his watch pushed Japan into recession.

While nobody will know if he’s right until the rate jumps to 10 percent in 2019, Abe has between now and an election that may come as soon as Oct. 22 to convince voters that it’s a good bet.

He can point to an economy that’s significantly stronger than the one he inherited, and the benefits of his plan to divert increased tax revenue into education and child care. His critics can cite weakness in wages, inflation and consumption.

Here’s a chart-based look at how far Japan has advanced since Abe came to power in late 2012 and much work lies ahead to ensure the economy remains on a firm footing.

After the tax-induced contraction when the levy went to 8 percent in 2014, and mixed results in 2015, GDP has picked up. Japan has now strung together six consecutive quarters of economic growth, the longest run of expansion in more than a decade. The outlook is bullish for next year as well, with exports supporting large manufacturers and the Bank of Japan forecasting GDP to rise 1.4 percent in fiscal 2018.

Despite the overall improvement, investment and consumer spending have yet to take off. The most recent reading of business spending missed expectations while household spending also came in below estimates. Both will have to pick up to make the recovery self-sustaining and to reduce reliance on exports. And resilience in consumer spending in particular will be the key to avoiding a contraction in fiscal 2019.

The job market has steadily improved since Abe came to power, with unemployment falling to 2.8 percent, the lowest among Group of 7 countries. That hasn’t meant better pay for all workers, however. Hourly wages have climbed consistently, mainly for the expanding ranks of part-time workers, but many of the country’s other wage indicators haven’t seen strong gains. Still, the central bank and a growing number of private economists are watching intently for the tight labor market to bring a much-needed wages breakout.

Monetary policy under Abe’s pick for central bank governor, Haruhiko Kuroda, has focused on wresting the economy free of deflation. Prices have seen some pickup but inflation remains well below the Bank of Japan’s 2 percent target. The BOJ expects 1.5 percent price growth in fiscal 2018….

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