Japan's Abe pledges economic support steps if risks intensify

Japanese Prime Minister Shinzo Abe said on Friday the government was ready to take "all possible steps" if risks to the economy intensified, signalling a fiscal-stimulus boost in the event this month's sales tax hike triggers a sharp downturn in growth. Abe's remark came as the bitter U.S.-China trade war and soft global demand have continued to put a dent in Japanese manufactures, profits and overall economic growth.

Earlier this week, the Bank of Japan's tankan survey showed business sentiment plummeting to a six-year low in the July-September quarter.

Japan rolled out a twicedelayed increase in the sales tax to 10% from 8%, a move that is seen as critical for fixing the country's tattered finances but may hurt the economy by dampening consumer sentiment. "Achieving economic growth remains my administration's top priority," Abe said in a speech delivered to an extraordinary parliament session that convened on Friday.

"If downside risks materialise, we will take all possible steps flexibly and without hesitation to ensure the economy is on a growth path," he said.

Abe's pledge to deliver support to the economy echoes that made recently by the Bank of Japan, which kept monetary policy steady last month but signalled its readiness to expand monetary stimulus as early as its Oct. 30-31 meeting.

Japan's economy has slowed as the trade war crippled exports, though robust capital expenditure and household spending have helped prevent a recession. Government officials have said the hit to consumption from the sales tax hike would likely be moderate, as households did not frontload purchases ahead of the higher levy as much as they did at the previous hike in 2014.

The government has offered vouchers and tax breaks in an effort to avoid a repeat of 2014, when an increase in the tax rate to 8% from 5% tipped the economy into recession. But BOJ Governor Haruhiko Kuroda has warned that the central bank must carefully watch how the tax increase could affect consumer sentiment, adding that it was ready to ease monetary policy further if risks intensify.

A BOJ board member with a casting vote on policy decisions also said the bank must consider "preventive steps" against risks, a sign its board may be tilting towards further easing as global pressures intensify.

Meanwhile, Japan raised its national sales tax for the first time in more than five years, putting the world's thirdlargest economy and its cautious consumers to the test.

After postponing it twice, Prime Minister Shinzo Abe's government went ahead with raising the tax to 10% from 8%. Mr. Abe said the government needed more money to support a fast-aging population. "This will be a big step toward building a social security system to benefit all generations," he said Tuesday.

Critics including populist lawmakers on the left and some right-wing economists sympathetic to Mr. Abe called the tax increase unnecessary because the government has no problem borrowing money, even though its outstanding debt is double the size of the economy.

The 10-year government bond currently has a yield of minus 0.16%, meaning investors have to pay for the privilege of lending Japan their money.