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Intensified U.S.-China trade war shaking Japan’s tax hike plan

Tokyo, May 14 (Jiji Press) — The escalating trade war between the United States and China has been putting pressure on the administration of Japanese Prime Minister Shinzo Abe over its consumption tax increase plan.

The Abe administration is sticking to its policy of implementing the consumption tax increase from the current 8 pct to 10 pct in October.

But calls among members of the ruling Liberal Democratic Party for postponing the tax hike again may grow further ahead of the election in summer for the House of Councillors, the upper chamber of parliament, depending on upcoming Japanese economic data, pundits said.

Dampened by the intensifying U.S.-China trade friction, Japanese stocks have kept falling since the turn of the Japanese era. In the latest developments, the administration of U.S. President Donald Trump announced a plan on Monday to expand U.S. tariffs to almost all imports from China, forcing the Nikkei stock average to extend its losing streak to a seventh session for the first time in some three years on Tuesday.

Koichi Hagiuda, executive acting secretary-general of the LDP, said at a press conference on Tuesday that he will closely monitor economic trends, apparently showing a cautious stance on the consumption tax hike.

Hagiuda, a close aide to Abe, came under fire in April when he referred to the possibility of putting off the tax increase.

The government and the ruling camp led by the LDP plan to carry out the hike unless an event as serious as the 2008 financial crisis triggered by the collapse of U.S. investment bank Lehman Brothers occurs.

Deputy Prime Minister and Finance Minister Taro Aso said at a separate news conference on Tuesday, “I don’t think the situation will develop into an event as serious as the 2008 financial crisis.”

Abe, who made decisions to postpone the consumption tax hike twice, has been moving under the assumption that the tax will be raised without fail this time.

At a meeting Tuesday, Abe said his government will lay out a free preschool education program while listening to opinions of local governments, in the wake of the enactment of a revised law last week to make preschool education free of charge.

Most government officials believe that it would be too late for the administration to postpone the tax hike, because Abe is pushing forward the free education initiative supposing that it will be funded by increased consumption tax revenue. In addition, the private sector’s preparation for the tax rise has been progressing under the government’s instruction.

Still, some LDP officials have been calling for putting off the hike amid growing concerns over an economic downturn, saying that the all-important House of Representatives should be dissolved for a simultaneous election with the Upper House to seek a public mandate for the postponement.

In a preliminary report released Monday, the Cabinet Office revised down its assessment on the composite index of coincident economic indicators for March to “worsening,” the first such assessment in some six years.

The government agency will release a preliminary report on the country’s gross domestic product in January-March.

Some analysts project that the Japanese economy suffered negative growth during the quarter.

Close attention has been paid to whether the government may change its basic assessment on the country’s economy in a monthly economic report due out late this month, analysts also said.

If a downturn in the economy becomes clearer, demands for leaving the consumption tax rate intact would erupt within the LDP, pundits said.

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