Japan Hikes National Sales Tax Despite Recession Fears

Japan has increased its national sales tax to 10% from 8% on Tuesday, a significant policy change that could tilt the world's third-largest economy into recession by depressing consumer sentiment, reported Market Watch.

The last two times policymakers increased the sales tax, 2-point rise to 5% in 1997 and another to 8% in 2014, an economic contraction shortly followed.

Prime Minister Shinzo Abe twice delayed the tax hike in recent years.

Abe has indicated the tax is now unavoidable given the demographic challenges in the aging country. He said the tax would help pay down the enormous national debt, and position the country towards more financial responsibility in balancing the budget by 2025. But taxing the consumer as the economy is deteriorating could be a recipe for economic disaster in 2020.

Japan's GDP expanded at an annual pace of 1.8% over the summer. The economy is quickly slowing into fall, thanks to the trade war between the US and China. Global trade volumes are plummeting through 2H19, has taken a toll on Japan's exports. The tax will likely sideline the consumer in 2020, force them into a savings pattern that could tilt the economy into a recession next year, similar to the tax increase in 2014.

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