One of the reasons that Standard and Poor’s is concerned is that Japan has the highest public debt to gross domestic product ratio of any industrialized economy. Although Prime Minister Yoshihiko Noda has proposed raising the sales tax from its current level of 5 percent up to 8 percent in 2014 and then to 10 percent in 2015 in order to improve the Japanese government’s financial health, it could be difficult for him to do so because his popularity is falling and his Democratic Party lacks the votes needed to push the tax increase through Japan’s parliament.
The Japanese opposition says that it is concerned that raising taxes could undercut Japan’s efforts to boost economic growth. Resistance to the tax increase could grow even stronger because it was reported just last week that Japan’s economy shrank during the last quarter of 2011 and the country announced today that its January trade deficit surged to a record high of 1.48 trillion yen ($19 billion). If Japan’s economy doesn’t show signs of strength soon, the chances of implementing the tax increases could drop significantly. Even if the tax increase makes it through parliament, it could have the unwanted side effect of undermining economic growth.
