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Abe aide says delaying Japan sales-tax increase is only option

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[TOKYO] Japan will probably delay increasing its sales tax for 2.5 years from April 2017 because the government needs to give priority to economic recovery, Hakubun Shimomura, an aide to Prime Minister Shinzo Abe, said on Sunday.

"We have no other options but to postpone the sales-tax increase," Mr Shimomura said in a news program aired by Fuji television on Sunday. "If the increase means a decline in tax revenue for the government, that would threaten the achievement of the goals under Abenomics."

Mr Abe has said he'll make a decision before an upper-house election this summer on whether to go ahead with a planned increase in the levy next April to 10 per cent, from 8 per cent at present. He had previously said the matter would be decided at an appropriate time and that it would be postponed only if there was a shock on the scale of a major earthquake or a corporate collapse like that of Lehman Brothers Holdings Inc. An increase in the levy in 2014 pushed Japan into a recession.

The prime minister told Finance Minister Taro Aso and LDP's Secretary General Sadakazu Tanigaki on Saturday to delay the sales-tax increase to October 2019, NHK reported. Mr Aso advised the prime minister to be cautious about the idea, NHK said.

"Japan is in economic conditions that require a delay to the sales-tax increase," Yasufumi Tanahashi, acting secretary- general of the ruling Liberal Democratic Party, said in a news program aired by public broadcaster NHK on Sunday. It is natural for Japan to take proactive measures as risks to global economies are increasing, he said.

A slowdown in the Chinese economy and weaker equities markets are also having negative effects on Japanese consumer spending, Mr Tanahashi said.

If Mr Abe fails to go ahead with his plan of raising the tax in April, it means his economic policies have failed and he and his cabinet members should resign to take responsibility, Tetsuro Fukuyama, vice secretary general of the opposition Democratic Party of Japan, said in the NHK program.

Mr Abe warned at a Group of Seven leaders meeting last week that the global economy faces significant risks of another crisis. While the Japanese leader failed in a bid to have the G-7 include his warning in a communique issued on Friday, he referenced the "Lehman shock" repeatedly in a press conference and said the world economy is threatened by a prolonged slowdown in demand.

Since the previous tax increase in 2014, the economy has moved back and forth between contraction and growth. Consumer spending remains weak and inflation data released Friday shows that prices are falling again.

If delayed, it would be Mr Abe's second postponement as the tax was initially scheduled to be raised in October of last year.

BLOOMBERG