Consumption tax strategy leaves credibility in doubt

The Japanese government looks set to press ahead with the hike in the consumption tax as planned next year, albeit with some offsetting increases in public spending and cuts in corporate taxes. This approach should minimise the threat to the economic recovery, for a year or two at least. But it would also delay the benefits to the budget and may not be so well received at the Bank of Japan. Credibility is therefore still at risk and monetary policy may not be loosened as far as it would otherwise have been.