Japan's Cabinet to endorse fiscal plan after sales tax hike decision

Finance Minister Taro Aso indicated Friday that the Cabinet will approve a medium-term fiscal consolidation plan after the government makes a final decision in the autumn on whether to carry out a planned consumption tax hike.

"It is difficult to endorse (the plan) before the decision (on the tax matter) is made," Aso said at a press conference.

Economic and fiscal policy minister Akira Amari also suggested at a separate news conference that the fiscal reform plan is unlikely to include numerical targets when it is hammered out next month.

"We cannot set concrete numerical targets without a judgment" on whether to lift the sales tax rate to 8 percent from the current 5 percent in April next year, Amari said, adding details of the plan will be discussed "from now."

Japan has been urged by the Group of 20 leading economies to craft a "credible" medium-term fiscal reform plan before their summit to be held in St. Petersburg, Russia, for two days from Sept. 5.

"We have pledged to present" the plan at the summit, Aso said.

The government of Prime Minister Shinzo Abe is expected to determine whether to go ahead with the tax hike, while taking into consideration economic indicators such as the revised April-June gross domestic product data, due out Sept. 9.

Abe has said the decision may be made in October, meaning Japan will explain to its G-20 counterparts at the summit the fiscal rehabilitation plan that has yet to be approved by the Cabinet.

Legislation enacted last August stipulates that the government will seek nominal economic growth of around 3 percent and real growth of about 2 percent, as a nonbinding target for the consumption tax hike.

Japan's economy is estimated to have grown at an annualized rate of around 3 percent in inflation-adjusted terms in the second quarter from April to June, surpassing the growth target, a survey of economists conducted by Kyodo News showed last week.

The world's third-largest economy has also shown signs of escaping from nearly two decades of deflation, with data released Friday showing Japan's consumer prices rose in June for the first time in 14 months, marking a 0.4 percent increase on year.

"The trend is seemingly changing from deflation to inflation," Aso said, adding the consumer price index "will become one of the indicators" upon which the government will base its tax hike decision.

The sales tax rate is scheduled to be finally increased to 10 percent in October 2015.