Do you want to raise the consumption tax rate now? Concern from the United States on October 4 at 16:05

"Why raise the consumption tax rate at this timing"
The Japanese media are skeptical about the Japanese consumption tax hike that took place on October 1st. This is an increase in the consumption tax rate in Japan that seems to have nothing to do with US consumers and the economy. Why is this pointed out? (Washington branch reporter Yosuke Yoshitake)

The main American newspaper is skeptical

“Increasing the consumption tax rate has a high risk of re-straining Japan's economic growth. Japan ’s biggest challenge is not finance, but demand is weak, and there is no need to increase the consumption tax rate.”

In a commentary published on September 25 by the Wall Street Journal, a leading newspaper in the economic field, even appealed that Japan's consumption tax was not necessary.

The basis for this was "consumer confidence index". Japanese consumer attitude index that predicts future consumption trends. We are concerned about the fact that we have entered the market and are falling rapidly.

The Consumer Attitude Index has been below the previous month for 12 consecutive months until September. It was an analysis that if we decided to raise the tax while the willingness to buy things was declining, consumption would decline more and more.

On September 30th, the Washington Post raised the question of raising the consumption tax rate with the headline “Increasing signs of economic slowdown to 10%” for the Japanese consumption tax.

“The economy slowed down in 1997 when the consumption tax rate was raised to 5% and in 2014 when it was raised to 8%. The Japanese economy has slowed since the second half of last year, and demand from the construction boom for next year's Olympics Price declines due to sluggish demand may push down investment that drives growth, and long-term efforts to break out of deflation may be reversed. "

It means that the efforts so far made to overcome the long-awaited deflation will be spoiled.

In addition, the New York Times gave a skeptical view under the heading “Japan raises the consumption tax rate regardless of growth concerns”.

Is the negative impact on the global economy?

Why is a negative view conspicuous in raising the consumption tax rate? We spoke with experts who are regarded as leading figures in Japanese economic research, President of the Institute for Economic Research and Management at Columbia University in New York, and Professor Emeritus Hugh Patrick (89).

“The consumption tax takes money directly from the people's pockets. If the Japanese government does not increase fiscal spending to mitigate the impact of the tax increase, the global economy may slow down somewhat.”

Professor Emeritus Patrick pointed out that if the brakes are applied to the economy of Japan, the third largest economy in the world, the impact may spread to the global economy.

Worried about rushing demand

On the other hand, Professor Emeritus Patrick confessed that there was another concern about the Japanese economy.

That was because there was no rush in demand before the consumption tax rate was raised.

In order to prevent the decline in consumption, the Japanese government has come up with various policies to raise the consumption tax rate to 10% this time, such as a reduced tax rate and a point-reduction system using cashless settlement.

The government's policy may be effective if the last-minute demand is not noticeable as in the past tax increase.

However, Professor Emeritus Patrick believes that consumption may have weakened in the first place so that there is no rush demand. It is because of the change in the population structure that the proportion of elderly people in Japanese consumers increases and the number of young people actively shopping decreases.

If that is the case, raising the consumption tax rate may prolong the slump in consumption, and it is necessary to pay close attention to the future of consumption.

Worried about the US economic slowdown rather than a budget deficit

In Japan, against the backdrop of ever-increasing social security costs, the combined debts of the national and local governments have exceeded 1,000 trillion yen, and the fiscal recovery has become a major problem.

For this reason, it is a little worrisome that the American media has hardly taken the long-term challenge of Japan's fiscal reconstruction.

Under the Trump administration, which has implemented a substantial corporate tax cut, looking back on the worsening of the fiscal situation, there may be a growing awareness of giving priority to economic growth rather than a sense of caution about the fiscal deficit.

Under these circumstances, it seems that the reason for placing orders for Japanese tax increases is also related to the growing concern about the recession in the United States.

On the 1st, WTO = World Trade Organization announced that the growth rate of global trade in goods is expected to be + 1.2%, much lower than last year's + 3%.

Trade friction between the United States and China has begun to adversely affect manufacturing production and exports in the United States, which was the driving force of the global economy, in addition to the economic slowdown in China and Germany.

The desire to eliminate any factors that could lead to a slowdown in the global economy may have led to a negative view of Japan's consumption tax hike.

As a risk factor in determining the future of the global economy, in addition to the US-China trade friction and the UK's withdrawal from the EU, the newly raised consumption tax rate in Japan. There is a global interest in steering Japan's economic and financial management.

Washington branch reporter Yosuke Yoshitake

He joined Nagoya Bureau in 2004 and was in charge of finance, the automobile industry, etc., from this summer.