2nd LD Writethru: Japanese PM announces sales tax delay in sign of faltering "Abenomics"

Japanese Prime Minister Shinzo Abe said on Wednesday that he will further delay an already controversial planned tax hike from April 2017 to October 2019 in a sign that his once-revered "Abenomics" blend of economic policies has failed to breathe life into Japan's ailing economy.

Speaking at a televised press conference, the Japanese leader said the delay was "essential to support not just Japanese growth, but global growth" and some of his decision making on the contentious issue was made following the outcome of the Group of Seven (G7) leaders' summit he hosted last week.

He added that the delay was also necessary to avoid a substantial drop in domestic demand, stating that the timing of the consumption tax hike as he planned it "could severely hurt domestic demand."

The Japanese premier also said the government was planning to have July 10 as the polling day for the upper house election, during which the voters will have to decide whether to back Abe flip-flopping over the latest tax hike schedule.

As the hawkish leader's modus operandi, Abe has stated time and time again that he would definitely continue with his planned tax hike in April 2017, having sought counsel from some of the best economic minds in the world, with the hike to go ahead unless there was a major global economic meltdown, or a massive natural disaster such as the 2011 quake, tsunami and nuclear catastrophe.

The delay has drawn harsh criticism from opposition parties, economists, the International Monetary fund (IMF) as well as regular civilians, who are beginning to lose faith in a leader who, for the best part, has been so cocksure about his economic policies.

As well as delaying the planned tax hike by some two-and-half years, Abe also said that his government will prepare more fiscal stimulus this fall that could total as much as 6 trillion yen (54 billion U.S. dollars).

Abe initially announced his decision to delay the tax hike to his ruling Liberal Democratic Party (LDP) members at a meeting earlier in the day, stating that he had made the decision to again delay the controversial tax hike to 10 percent by two and a half years.

The delay threatens to deal a significant blow to the Japanese leader ahead of the upper house elections, as his ascension to office in December 2012 was based predominantly on his "Abenomics" policy mix "miracle cure" that, through aggressive monetary easing and fiscal spending, as well as structural reforms, would rescue Japan from the doldrums of economic stagnation as well as work toward talking the nation's decades of deflationary pressure alongside the central bank.

Economists have been quick, however, to point out that this has not been the case, and Abe's decision is a testament to the failure of his policy mix, with the announcement acting as a double-edged sword.

On the one hand, the prime minister has bought himself more time to get his fiscal house in order, but on the other, in not following through with his planned hike as per his original schedule, has lost public and market faith, which could further impact falling domestic consumption as well as create volatility in both the stock and the currency markets.

In light of this, a no-confidence motion was filed against Abe's cabinet by four opposition parties a day earlier, although the Japanese lower house on Tuesday shot down the petition.

The parties blasted Abe's economic and other policies, and took aim at him and his party ahead of the July upper house election.

The opposition parties believe that Abe postponing the sales tax hike is a tacit admission that "Abenomics" has utterly failed and, in fact, has worsened Japan's economic situation.

The latest delay marks the second time the sales tax hike has been pushed back by the Japanese leader following the first tax hike under Abe in 2014, when he sanctioned a rise by 3 percent to 8 percent, which resulted in the economy, already mired in deflationary pressure, being plunged into recession as consumption was choked and import costs weighed heavily, owing to a relatively strong yen, while exports were sluggish as overseas demand waned.

At that time, as is still the case, the government was also buckling under the ever-increasing burden of its mounting public debt that, has since skyrocketed to around 240 percent the size of the nation's gross domestic product, which makes Japan, the world's third-largest economy, one of the most debt-ridden countries in the industrialized world.

Japan's debt crisis and its need to generate much-needed revenue from increased tax is being quickly compounded by a demographic crunch, as the nation continues to age, meaning increasing social welfare costs, while the population simultaneously shrinks with a hollowing out of the key wage earners and would-be tax payers.

Abe's controversial move to once again delay the tax hike has a number of implications ahead of this summer's upper house election and with regard to the possibility that the prime minister, despite a number of statements made by him to the contrary, may dissolve the more powerful lower house of parliament and call a double election.

Observers have said that in doing so, with economic rehabilitation as the political spin once again being force-fed to the public.

While his popularity ratings are relatively high following the recent Group of Seven leaders' summit last week, which saw U.S. President Barack Obama pay a visit to Hiroshima and deliver an impassioned speech to the survivors of the wartime A-bombed cities, including Nagasaki, Abe could use the opportunity to forge ahead with a public referendum after the upper house election to officially amend Japan's constitution -- his primary purpose as leader as he has stated.

The referendum requires a 50-percent majority backing from the public. Others close to the matter have said the premier may hold off on dissolving the lower house until the economy has made some tangible headway, when he will have the leverage needed to extend his time in office.

Amending the constitution and fully reinstating Japan's military and its borderless oversees operations for the first time since WWII are currently prohibited under the Supreme Law.

Political watchers have also said the timing of his decision may also be affected by the current U.S. presidential race, if not the actual outcome.

Opposition parties, along with a number of senior economists, have pointed out that yet another delay in the tax hike, in the short term, sends a message to the Japanese public as well as global markets that the prime minister's "Abenomics" policy mix, involving monetary easing and flexible spending, has indeed failed and this will further lead to consumers tightening their belts, households not spending, as well as prolonging an already protracted period of stagnant wage increases.

Market players also proffered that the move could lead to increased market volatility as confidence in Japan's economy continues to diminish, in which case the yen is often used as a safe haven by investors switching out of riskier assets, which further threatens to batter Japan's export-led economy relying heavily on a weak yen versus its counterparts.

In December 2014, Abe first delayed the tax hike and called a snap election, with observers not ruling out the possibility that a double election could be called in July, although the Japanese leader denied that such an occurrence could happen this summer during Wednesday's press conference. Endit