The Journal The Authority on Global Business in Japan

Ministry of Finance
Delays to tax hike and changes to spending plan

Prime Minister Shinzo Abe is expected to announce a consumption tax hike for October 2019, and the ways in which revenue generated from this increase will be spent have been changed to cover free education for children.

Of the ¥4 trillion that was to be applied to repayment of government borrowings, approximately half will be moved to education. The Ministry of Finance (MOF) is reportedly inclined to accept this schedule for the increase from 8 percent to 10 percent despite the likelihood of a negative impact on the economy.

During his address to the opening session of the Diet on September 25, Abe expressed his thoughts on how the additional revenue would be used. The guidelines would call for an “all-generation type” of social welfare, shifting the focus from mainly the elderly to include those raising children.

It is anticipated that boosting the consumption tax by 2 percent will generate additional revenue of approximately ¥5 trillion. The government previously planned to use one-fifth of this for medical treatment, home care, and other forms of welfare, with the remaining four-fifths going toward the reduction of government debt.

In the absence of debate by the government and within the ruling party, Abe suddenly proposed a major policy change. The shift had been indicated the previous summer by those close to the prime minister—including his secretary, Naoya Imai—in advance of the dissolution of the Diet and subsequent general elections.

These moves put the MOF on guard, as the proposal was likely to upset the so-called “primary balance” applied by both national and local governments which aims to bring the basic fiscal balance into the black during 2020. It also raised the possibility that efforts to restructure Japan’s finances, which have been walking a tightrope, might be adversely affected.

However, the MOF gradually came to accept the prime minister’s proposal.

“Even by cutting payouts to reduce the deficit, it would be better for the prime minister to delay the consumption tax increase planned for October 2019,” a high official was quoted as saying. Vice-minister Junichi Fukuda also sees no point in taking on a fight he knows he can’t win. The view widely held by top bureaucrats within the ministry is one of skepticism over whether Abe will actually take the plunge and raise taxes.

Financial Services Agency
Monitoring of Bitcoin to commence

The Financial Services Agency (FSA) will begin monitoring of Bitcoin and other cryptocurrencies. As of the end of September, there were 11 such operators registered with the FSA. While the bankruptcy of Bitcoin broker Mt. Gox shook investor confidence, cryptocurrencies are still seen as an important next-generation technology and, through the new regulations, the FSA aims to oversee their healthy development.

The 11 brokerages that registered with the government are some of the largest of their kind in Japan, including bitFlyer Inc., Money Partners Group Co., Ltd., and Tech Bureau Corporation. The FSA began monitoring their transactions from October. In all, 28 operators have formally initiated registration. Approval of the remaining 17 is still pending.

Last April, the law covering such transactions was revised to require brokers exchanging or selling cryptocurrencies to register. “Deemed operators” that were in business prior to the law going into effect were notified they had until the end of September to register.

The FSA checked to see whether the assets of the operators and their users were set up so that they could be separately managed. It also adopted measures to deal with illegal transfers and to exclude fraudulent coinage.

Of the deemed operators, 12 were found not to be in compliance with FSA standards and, through their non-registration for this and other reasons, were obliged to halt business. The FSA is said to be overseeing refunds to those companies’ users.

One FSA official remarked: “We want to put efforts into watching trends in the cryptocurrency market. To support innovation leading to new fund transaction services, we would like to nurture the development of robust cryptocurrency operators.”

Keizaikai magazine