The question of whether to go ahead with next year’s sales tax hike will remain in the spotlight with Monday’s release of the Q3 GDP data, which Prime Minister Abe previously said would inform his decision. In our view, concerns about the economic damage another tax hike could do are valid but can be mitigated. However, not raising the tax would raise questions not just about fiscal sustainability but also about the longevity of the Bank of Japan’s commitment to ultra-loose monetary policy. We therefore think the government should press ahead.
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