http://www.nytimes.com/2014/08/14/business/international/japan-s-economy-contracts-after-sales-tax-increase.html?module=Search&mabReward=relbias%3Ar%2C%7B%222%22%3A%22RI%3A18%22%7D&_r=0
During the Spring Japan has raised their Sales Tax, which ended up driving Japans economy into one of the biggest contradictions. On April 1st, the areas that took the biggest hit from this increase on sales tax was household spending and Japan's economy. The bank of Japan believes that Japan was on its way to moderate recovery and they will not have to expand stimulus. Unfortunately, after the third quarter for Japan the growth was very small. There for the Prime Minster of Japan might have to create a second sales tax by 8 to 10 percent on October 15th. On the other had the economics minister has told the government that if the third quarter ends weak that they will have to prepare a supplemental budget even though it won't be enough to affect the economy positively. The quarter before Japan's economy shrank by 1.7 percent. On top of that, export fell by .04 percent. There are a lot of analysis believe Japan will come back.
I do not understand the strategy of the Prime Minister in this situation. If the biggest hit from the sales tax was to household spending, during a period in which the bank of Japan said the country’s economy WAS on its way to moderate recovery, then why would they add on another tax of 8-10% in October?
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