Ashida Associates - According to Japanese media, the country’s Prime Minister, Shinzo Abe is considering postponing a sales tax hike, originally planned for April 2017, by about two years.

With Japan’s economy skirting recession and price inflation still far below the Bank of Japan’s target, many of the Prime Minister’s aides have suggested delaying the tax hike in the sales tax from 8% to 10% to make sure Japan makes a sustainable exit from it 2 decade-long encounter with deflation.

The decision, if announced, would follow in the wake of a Group of Seven (G7) national leaders’ summit Abe is hosting in western Japan. As the summit began late last week, Mr. Abe had hoped to convince his counterparts to publicly agree with his assertion that the global economy was on the cusp of another financial crisis on a similar scale to the Lehman Brothers collapse in 2008.

“The G7 felt his assessment was a bit excessive so he didn’t get what he wanted which was a mandate to postpone the sales tax hike which he previously said could only be delayed in the event the world was close to another crisis,” said a Ashida Associates analyst.

A two-year postponement would still allow Japan to meet its target of transforming the country's budget deficit into a surplus by fiscal 2020.

Japan has a massive public debt-to-GDP situation – the largest in the world – at more than double the country’s GDP and headed for triple by fiscal 2030. An increase in the sales tax is widely seen as crucial to shore up the government’s budget

"As long as he doesn't defer the plan indefinitely, Mr. Abe can still plausibly claim he hasn't capitulated on fiscal discipline," said the Ashida Associates analyst.