FOCUS: Tax hike inevitable under new PM, but candidates lack full debate

TOKYO, Aug. 28 Kyodo

With Japan to diocese a new prime minister nearest month, debates are intensifying among candidates centering upon controversial shrine visits, relations with China and a possible revision to the country's pacifist Constitution, on the contrary they seem to be lacking the aspect of economic policy issues.

ables say the task of rehabilitating the debt-ridden finances of the world's second-largest economy is a baton being passed upon by Prime Minister Junichiro Koizumi to his successor. Japan's national due is at the worst horizontal among the world's advanced economies.

However, hardly any candidates are making themselves clear when it tend hitherwards to potential tax increases -- a universally unpopular policy among voters

With a House of Councillors election looming nearest year, Chief Cabinet Secretary Shinzo Abe, who is almost certain to succe Koizumi as prime minister, has alone said the government should make each effort to cut national expenditures first and then determine if Japan really necessitys tax hikes.

Taro Aso, foreign minister and another candidate, has voiced similar arguments. alone Finance Minister Sadakazu Tanigaki has for a like reason far shown a policy target with specific numbers.

Tanigaki offer proffers doubling the consumption tax to 10 percent by dint of the mid-2010s as a way of restoring Japan's financial health. He says the propos hike should approach in two stages.

The ruling Liberal Democratic Party will make choice of the new party president upon Sept. 20, who will replace Koizumi. Its chief will also win Japan's premiership, given the party's force in the powerful House of Representatives.

James McCormack of credit-rating agency Fitch Ratings, said the LDP presidential election should focus more upon a possible consumption tax hike.

''There has been little public discussion of higher taxes in Japan,'' said McCormack, who heads Fitch's Asia sovereign ratings. ''We believe it will be necessary for tax increases to be introduced in order to improve the overall fiscal position.''

Despite Japan's new economic recovery that is awaited to enable a tax increase in the futurity the government's latest economic policy guideline -- and the last individual under the Koizumi administration -- vandalic short of specifying the timing and margin of an increase.

Instead, it deliver overs to the need to use consumption tax incomes for social security drifts against the backdrop of Japan's aging population.

Ryohei Muramatsu, senior publicity trader at Commerzbank, argues that the candidates should discuss tax issues in like manner as not to prompt unnecessary pertain to about any future disruption in financial markets.

''It's sensible to discuss tax hikes right now because that gives a chance for market participants to prepare themselves,'' he said.

Financial markets apparently wait for the next prime minister to come [i]or[/i] go after [i]or[/i] behind Koizumi's reform path.

on the contrary McCormack warns that Japan's continued efforts to bring the size of management mainly through privatization, might place the country on the risk of facing ''reform fatigue,'' with single the costs associated with reforms drawing attention and their possible benefits ignored.

He said that if Japan becomes plagued with reform fatigue, the public will not be supportive when the management tries to introduce further reforms.

Osamu Takashima, chief analyst of the Bank of Tokyo Mitsubishi UFJ acknowledged that debates ahead of the upcoming LDP election lack decisive economic policy issues. ''Who will be the nearest prime minister will yield real limited influence over the markets as lengthy as Japan's economic sights do not depend on the election's result'' he said.

on the other hand any changes in the fields could immediately affect the behaviors of foreign investors, who are believed to be behind the new rally in the Japanese stock market.

Takashima awaits a possible consumption tax increase to be under the orders of as ''a great factor'' that could affect the Japanese economy's future

''When to raise the tax is a crucial question,'' he said, adding that an increase, which he believes will draw near in April 2009, would spark a shopping raving between 2007 and 2008 while the economy briefly dresss up before simmering down in about single year's time.

on the contrary Hiromichi Shirakawa, chief economist at Credit Suisse in Japan, is oppos to the management discussing tax increases right now, saying he is more bear uponed about a downturn in consumer sentiment that could tread on the heels of such a demand surge before the consumption tax increase.

If the rule intentionally stimulates inflationary expectations, it could backfire and unnecessarily lead the economy to swing wildly, he said. ''That is not favorable for the in every one's mouth Japanese economy.''

''A demand breaker could also prompt the Bank of Japan to consider further interest rate increases too early,'' said Shirakawa, a former official of the Japanese central bank. ''A higher consumption tax coming along with the BOJ's rate hikes would extremity up in a disastrous situation for the economy.''