Quakes may sway Japan's Abe to boost spending, delay tax hike

[TOKYO] A deadly series of large earthquakesin southern Japan may add to the case for Prime Minister Shinzo Abe to increase fiscal stimulus and postpone a planned increase in the nation's sales tax.

Mr Abe has said only an economic shock on the scale of the 2008 global financial crisis or the 2011 quake and tsunami in the country's northeast would justify delaying the levy hike. Even before this latest disaster, advisers and influential economists had been calling on to Mr Abe hold off raising the tax.

The quakes and scores of aftershocks, centered on Kumamoto prefecture, have killed at least 42 people and left more than 1,000 injured.

Over 110,000 people have been evacuated to shelters. Mr Abe hinted Monday at compiling a stimulus package. The damage to the area may also affect his thinking on whether to call a snap general election this summer to coincide with a poll for the upper house.

Hideo Hayakawa, a former executive director at the Bank of Japan, said in an interview Monday that the disaster makes a double election more unlikely as the affected areas will still be in chaos.

"He might even decide to postpone the consumption tax hike without holding a double election," Barclays Plc economists Kyohei Morita and Yuichiro Nagai wrote in an e-mailed note.

"For now, the front-loading of the FY16 initial budget will likely be accelerated."

"We will take all necessary measures," Mr Abe said in parliament Monday in response to a question about the possibility of an extra budget. The premier said he'd consider speeding up the transfer of tax revenues to local governments and using surplus budget funds.

Political analyst Harumi Arima said the government will compile a large budget to aid the recovery in Kumamoto, as well as for "national resilience" measures to better prepare the quake-prone nation for disasters.

The Kumamoto region was already facing a downturn in business sentiment, including the tourist industry, according to data from the central bank. Now, it is being suggested that insured losses from the quakes may exceed US$7 billion.

Toyota Motor Corp said its operating profit may be reduced by about 30 billion yen (S$377 million) for the current quarter, citing disruption to parts supplies and halted production lines at some of its factories.

Some of Mr Abe's confidants have been calling for stimulus and a postponement of the tax increase for months. Ruling Liberal Democratic Party lawmaker Kozo Yamamoto, one of the prime minister's group of pro-reflation advisers, called last week for a 10 trillion yen fiscal package.

Nomura Holdings Inc analysts wrote Sunday that while the scale of the damage is still unclear, the disaster is not on the same scale as the 2011 disaster. Even so, the brokerage pointed to damage to supply chains in industries from automobiles to electronics.

BLOOMBERG