Deflation is turning out to be a real quagmire for Japan. One of the architects of Abenomics, Koichi Hamada, a special adviser to Japanese prime minister Shinzo Abe and one of his closest confidants, said the government should not go ahead with a planned sales tax hike in an interview with the Telegraph over the weekend.

Hamada said the government’s decision to raise the tax to 8% from 5% in April had resulted in a serious economic contraction and that the economy was still was too fragile to be able to handle another hike so soon.

Some political analysts are saying the continuing weak economic data make it likely that Shinzo Abe will call a snap election and postpone the next stage of the increase from next October until April 2017.

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Abenomics – Statements from Hamada

In the interview, Hamada noted that raising the sales tax had blunted the impact of Abenomics’ “three arrows” of monetary easing, fiscal stimulus and structural reforms designed to break out of deflation, boost growth and help Japan recover from what he called as a “Ponzi game situation”, specifically calling it a “mild ponzi game”, but noting that Japan’s large foreign reserves made the game feasible, Hamada further stated:

“In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I’m not saying it’s good.”

“The consumption tax hike is a great big turbulence to the Japanese economy. It may have erased almost two thirds of the benefits of Abenomics,” he commented the Telegraph. “At the very least, a third of this great experiment is gone.

The statement by Hamada echoed comments made by Marc Faber in a recent interview on Bloomberg TV.

“I used to say that we should wait until the third quarter figures are out. However, by various economic indicators, the GDP figures cannot be very optimistic,” Hamada continued.

Abenomics – Tax hike needed to keep Japan national debt under control

Many supporters of the sales tax increase, including Haruhiko Kuroda, the governor of the Bank of Japan, argue that Japan must start working on reducing its huge national debt (which currently represents nearly 230% of national output) and growing social welfare costs. Of note, the BoJ increased its asset purchases by 25% a year to around $700 billion annually a couple of months ago to counteract the impact of the April tax hike.

H/T ZeroHedge