-Takahira Ogawa, director of sovereign ratings at S&P's
Following recently published positive retail sales data, Japan posted a surprising bounce back of industrial production, adding to hopes the negative impact of the April sales tax hike is waning. However, the government needs more evidence of a sustained recovery before it could confidently proceed with raising the levy next year. Japanese industrial output rose at the fastest pace in nine months in September, surging 2.7% following the 1.9% decline in the preceding month. The largest contributor to the increase of industrial production appeared to be transport equipment, followed by electronic parts and devices, as well as durable electrical machinery. According to a survey conducted by the Ministry of Economy, Trade and Industry, production is projected to rise 1% in November.
Nevertheless, it is still unclear whether the Japanese government will stick to its plan to hike sales tax again in October 2015. Many analysts believe that Prime Minister Shinzo Abe will proceed with tax hike next year, accompanied by fresh stimulus measures to safeguard a fragile recovery in the world's third-biggest economy. However, Standard & Poor's said that the country's credit rating may be put in jeopardy by the second hike of the tax, in case it snuffs out any chance of economic revival. Takahira Ogawa, director of sovereign ratings at S&P's added the government would need to cut welfare spending and implement structural reforms, in case it opts out to postpone rate hike decision.
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