Japanese Prime Minister Shinzo Abe is expected to announce on June 1 that the government will delay a scheduled sales tax hike by two-and-a-half years, but will likely bow to pressure from his coalition partner not to call a snap general election.
The tax delay, which had been widely expected, will be welcomed by voters, who will cast ballots in an upper house election in July. But it is fanning doubts about Abe's plans to curb Japan's huge public debt and fund ballooning social welfare costs of a fast-ageing population.
It would be the second time that Abe has delayed the increase in the sales tax to 10% from 8%, after a rise from 5% in April 2014 tipped the economy back into recession.
Abe took office in December 2012 pledging to beat deflation and reboot the moribund economy with his "Abenomics" revival recipe, but has made little headway amid stubbornly weak domestic and export demand.
Abe, whose term as ruling Liberal Democratic Party president and hence, premier, ends in September 2018 unless the LDP changes its rules, has repeatedly said he would implement the tax rise as planned unless the economy faced a shock from a financial crisis or natural disaster.
Government officials have said Abe has not abandoned a pledge to bring the country's primary budget balance into the black by the fiscal year from April 2020 to rein in public debt which is already more than double annual economic output.
But that target had already looked elusive, even with the government's rosy forecast of real economic growth of 2% on average in coming years.
Abe will also need to explain to voters how he plans to make up for the funding gap from the tax hike delay to October 2019, and keep pledges to beef up support for the elderly.
