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Abe adviser against further sales tax hikes

FXStreet (Bali) - Following Monday's confirmation that the Japanese economy contracted the most since the quake catastrophe back in 2009, the pressure on Prime Minister Shinzo Abe's to stimulate the economy is mounting, with Etsuro Honda (an economic adviser to Japanese PM Abe) in an interview with The Wall Street Journal, now recommending not to implement further sales tax hikes next year, as currently planned.

Key quotes (WSJ)

"The effects of Abenomics are weakening compared with last year. The Bank of Japan would need to take more action to achieve its inflation goal if the current situation continues. The government's move to raise the national sales-tax rate to 8% from 5% on April 1 has cut consumers' real purchasing power, dealing a blow to domestic demand, an outcome the government shouldn't repeat next year."

"Abenomics and the sales-tax increase are policies facing in opposite directions. If you step on the gas and hit the brakes at the same time, you know what will happen? The car will go into a spin."

"I want the governor of the Bank of Japan to focus exclusively on monetary policy. What the government should do with the consumption-tax rate, and when, is a matter to be decided by the government, and I want him to leave that job to the government."

"Mr. Honda said the best option would be for the government to postpone the two-percentage-point increase by 1½ years."

"The negative income effects are here to stay permanently," Mr. Honda said. "Unless you do something to overcome them, you can't get over the sales-tax impact."

"Even if the yen weakens a little more, that will be no problem at all" for the economy, given its effect of boosting the value of what Japan earns through exports and foreign investment in yen terms, Mr. Honda said, adding that a further weakening wouldn't strike him as strange. Still, Mr. Honda said a dollar above ¥120 would be "too high."

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