TOKYO - Japanese Prime Minister Shinzo Abe told ruling party leaders on Tuesday that he will delay an unpopular sales tax rise and call a snap election, a public TV broadcaster reported, a day after data showed the economy had slipped back into recession.
The world's third-biggest economy unexpectedly shrank for a second consecutive quarter, data showed on Monday, a sign the pain from an initial rise in the sales tax to 8 per cent from 5 per cent in April was lasting longer than expected.
Abe was expected to announce the delay of a second planned rise to 10 per cent from October 2015 - most likely for 18 months - and to state his intention to call an election for Dec. 14 at a news conference, according to media and ruling party lawmakers.
Public broadcaster NHK said he had informed the top executives of his Liberal Democratic Party (LDP) of his decision ahead of the news conference, which his office said would be held from 7:10 p.m. (1010 GMT). Abe - who returned to power in December 2012 pledging to revive growth with his "Abenomics" mix of hyper-easy monetary policy, spending and reform - is seeking to renew his mandate just as doubts about the success of his strategy are deepening.
No election for parliament's lower house need be held until late 2016. But Abe is hoping to cement his grip on power before his voter ratings, now below 50 per cent in some surveys but still sturdy by Japanese standards, slip further. In delaying the tax hike, Abe must tread a fine line to avoid suggesting that Japan is abandoning fiscal reform despite a public debt that is already twice the size of the economy.
Finance Minister Taro Aso, signalling that a delay was likely, told reporters on Tuesday that a sales tax hike at some point was inevitable to pay for the bulging social welfare costs of Japan's fast-ageing population.
Removing a clause in current law that allows the government to delay the tax hike if economic conditions are too severe would be one option to reassure investors that the increase would not be postponed again, Aso said. "It's better to have some form of guarantee," he said.
Abe is also considering some form of measures to stimulate consumption and help struggling regions, Natsuo Yamaguchi, the head of the Komeito, the junior party in the ruling bloc, told reporters after meeting the prime minister. Media reports said the package could be worth 2-3 trillion yen ($17-$26 billion). Abe has been tight-lipped in public about his plans, but repeated on Monday that beating the deflation that has gripped Japan for most of the past two decades was vital.
On Monday, he also hinted he was preparing for battle at the polls. Speaking at a reception, Abe quoted a phrase - "weather today fine but high waves" - used by a Japanese admiral in a telegram before a naval battle in the 1905 Russo-Japanese war. The Japanese fleet destroyed two-thirds of the enemy vessels.
Tatsuo Kawabata, a senior official of the opposition Democratic Party, told a news conference that the prime minister was attempting to cover up signs that Abenomics was failing. "Abe is trying to rest everything by dissolving parliament,"Kawabata said in comments shown on NHK public TV. Few expect the LDP and its smaller ally to lose their majority.
But financial markets and analysts are now contemplating the possibility that the ruling bloc might fair less well than initially anticipated and that Abe could emerge weaker after the vote. "A recession will give opposition party attacks on Abe more salience, suggesting the possibility that the ruling coalition could lose seats," wrote Tobias Harris at consultancy Teneo Intelligence.
The LDP and the Komeito party now hold a two-thirds majority in the lower house. Abe, who is serving his second term as prime minister after a troubled 2006-2007 term, inherited the sales tax plan from his predecessor based on a ruling-opposition party agreement in which he played no direct part.