After crushing victory in Sunday’s elections, one should wait and watch whether Japan’s Abe would push through growth strategies, feel Citi analysts.

Shinzo Abe

Prime Minister Shinzo Abe posted a crushing victory in Sunday’s Upper House election. This has revived attention whether Abe would leverage the recent victory by pushing for decision on planned consumption tax and drafting growth strategies.

In Sunday’s Upper House election, the ruling bloc got a stable majority facilitating the coalition to chair all standing committees besides having as many or more members as the opposition in all of those committees.

Post the election results, Bank of Japan’s Takehiro Sato exuded confidence by indicating Japan was heading for a sustainable recovery as household sentiment and exports improve. He, however, indicated the Bank of Japan is prepared to inject more stimuli if the economy’s recovery is threatened.

Citi anticipates 4.3 percent growth

Kiichi Murashima and Naoki Lizuka of Citi in their recent report on ‘Japan Macro Flash’, anticipate a high quarter-on-quarter annualized growth of 4.3 percent in the second quarter.

The analysts feel the second quarter GDP data that is expected to be announced on August 12, would throw some light on the decision to hike consumption tax.

Abe to take a final call on consumption tax

Kiichi Murashima and Naoki Lizuka of Citi feel the immediate attention of Prime Minister Abe post the recent election results would revolve around his final decision on hiking the consumption tax.

The analysts quoted Abe’s remarks post the election results wherein he indicated “It is going to be a very tough decision. I don’t want to miss a big change to eradicate 15-year-long deflation. However, I realize that financial markets are watching our continued efforts for fiscal rehabilitation”.

According to existing law, the current consumption tax rate of 5 percent in Japan can be increased to 8 percent in April 2014 and further to 10 percent in October 2015. However, the law also has a provision that the hike can be finalized by the government keeping in view the prevailing state of the economy.

Citi analysts feel the final call on the consumption tax will likely reflect forward-looking factors. The analysts predict Abe might pronounce his decision before the G20 summit meeting scheduled for September 5-6.

Growth strategy falling short of expectations

Kiichi Murashima and Naoki Lizuka of Citi note the first growth strategy announced in June fell short of market expectations, as the government was desisting itself from trying painful reform measures ahead of the elections. Citi analysts feel the government should present a grand vision besides individual measures, including capex tax credits, to bring growth strategy back on track.