Customers enter a Forever 21 store in the Harajuku district of Tokyo. Japanese companies want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a Reuters poll showed yesterday.

Reuters/Tokyo

Japanese companies overwhelmingly want Prime Minister Shinzo Abe to delay or scrap a planned tax increase, a Reuters poll shows, highlighting concerns that it could derail a fragile economic recovery.

As expectations grow that Abe will soon announce he is putting off the unpopular measure, the Reuters Corporate Survey found that nearly three in four big companies think the economy is too weak to weather the increase as scheduled in October 2015.

The government raised the national sales tax to 8% from 5% in April, the first of a two-stage plan that would raise it to 10% next October in a bid to rein in massive public debt.

The April hike pushed Japan into its worst decline since the global financial crisis in the second quarter. Abe has said he will look at third quarter GDP, due out Monday, before deciding whether to proceed with the planned October 2015 tax increase.

Some Japanese media say Abe will postpone the hike and call a general election in an effort to lock in his grip on power. The economy likely grew at an annualised 2.1% rate in the third quarter, a relatively feeble rebound the from the 7.1% April-June plunge, a Reuters poll of economists showed last week.

“It’s highly risky to force through a tax hike in a situation where consumption has not recovered as expected,” said a manufacturing executive in the Reuters survey.

“It’s desirable to delay it.” The maker of Subaru cars warned that the tax hike would harm a faltering economy.

“Everyone is saying things, including cars, are not selling. I am very worried about the sales tax hike next October,” Fuji Heavy Industries CEO Yasuyuki Yoshinaga told Reuters in an interview this week.

The Reuters poll of 486 large manufacturers and non-manufacturers, conducted between October 27 and November 10 by Nikkei Research, does not fully reflect the Bank of Japan’s October 31 monetary easing, which stunned markets, pushing up Tokyo shares and weakening the yen.

Of the 250 firms answering questions on the sales tax, 72% said the world’s third-biggest economy cannot cope with the planned tax hike next year, while 28% said it can.

Japanese firms have become increasingly wary about the planned sales tax hike in recent months, following a run of soft economic indicators that highlighted a bigger-than-expected hit from April’s increase.

One third of companies said they want the government to put off the tax hike by up to a year, a quarter called for a delay by a year-and-a-half or more and 10% want the idea scrapped.

“The priority should be put on ending deflation,” said an executive at a service company. Companies participate in the monthly survey anonymously.

“A tax hike must wait until prices and wages pick up to an extent that people can actually feel inflation, otherwise the economy could falter.” Highlighting their scepticism about higher inflation and durable growth, only 16% expect to raise prices of their goods and services next year, 28% plan not to raise prices and 57% remain undecided.

“Abenomics” seeks to pull Japan out of 15 years of deflation and tepid growth by spurring a self-sustaining cycle of rising profits, prices and wages.

But in the survey only 2% said they can raise wages next year more than this year, 31% expect wage hikes in line with this year, 11% see smaller pay rises next year and 14% say they cannot raise wages at all. Last month’s survey found that 20% of firms thought the economy was ready for another tax hike, 33% said it could not weather a hike and the rest declined to say either way.

Separately, the Reuters Tankan found Japanese manufacturers grew more confident for the first time in three months but expect conditions to worsen again in coming months, while sentiment among service companies slid for a second month to its lowest in a year, as retailers continued to feel the pain from the sales tax hike.