Amari: Weak yen has both positive and negative impacts on Japan’s economy.

Bloomberg/Tokyo

Japan still plans to raise the national sales tax again in 21 months, even as the economy struggles to gain momentum following the recession caused by a hike in the levy last year.
“Unless something really unusual like a large economic shock happens, if things are in a normal state, we’ll definitely raise the sales tax,” Economy Minister Akira Amari said in an interview in Tokyo on Thursday. “It’d be best for the government to raise the sales tax after declaring an end of deflation.”
Amari’s comments underscore the pressure on Prime Minister Shinzo Abe’s government to consolidate Japan’s finances as the nation’s debt burden swells. His cautious tone on deflation comes as the Bank of Japan’s efforts to stoke faster price gains run into headwinds in the form of weak consumer sentiment and low oil prices. The most recent reading of the BoJ’s preferred inflation gauge was 0.1%.
The minister also said that China’s economic slowdown poses a bigger risk to Japan than any financial turmoil flowing from the crisis in Greece.
Amari, who is spearheading the government’s efforts to raise growth and reinvigorate the economy, reiterated that the weak yen has both positive and negative effects for Japan’s economy. He added that it was hard to say at what level the pros and cons would be unbalanced.
“It’s important that foreign exchange rates reflect economic fundamentals and stay stable, without abrupt moves,” Amari said.
The currency traded at 123.08 against the dollar at 8:50am in Tokyo yesterday, after reaching 125.86 on June 5, the weakest level in 13 years. The yen has dropped more than 30% since Abe came to power in December 2012.
Bank of Japan board member Yutaka Harada said last month that inflation might not accelerate quickly enough to reach the BoJ’s 2% goal within the latest projected time frame of April to September of 2016.
Amari declined to comment on whether the BoJ would need to increase monetary stimulus further to meet the price goal, while saying he expected the central bank would take a careful approach to reaching its 2% inflation target.
The most recent data for industrial production shows this key indicator of economic strength dropping, while export growth has slowed. JPMorgan Chase & Co economists have predicted the economy will slow to a standstill this quarter while their counterparts at BNP SA says a contraction is possible.
Amari said that while Japan’s economy is headed for recovery, there is some seesawing, and we may see that this quarter after strength in the three months through March.
Japan’s economy expanded an annualised 3.9% in the first quarter from the previous three months.


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