Tokyo stocks dropped Wednesday, snapping a five-day winning streak, as the yen surged on news that Japan's prime minister would delay a sales tax rise that threatened the nation's fragile economy. Shinzo Abe announced his decision to members of the ruling Liberal Democratic Party in televised remarks before a press briefing later in the day. The premier said the rise to 10 percent from eight percent, planned for 2017, would now be pushed back by more than two years to late 2019.
Abe will likely no longer be in office at that stage, putting the tough decision on his successor. The conservative leader swept to power in late 2012 on a pledge to kick-start growth with his Abenomics policy blitz, but the plan has largely failed to live up to its billing.
"I think the bigger focus is whether or not Abe's decision to delay represents a change in Abenomics," Credit Suisse Group's director of equity cash sales, Stefan Worrall, told Bloomberg News. "This, I think, is the market's focus with regards to this decision." The delay suggests Abe does not think Japan's economy is strong enough to withstand higher consumer prices. Analysts said this underscores his failure to put the world's number three economy on the right track.
The decision also threatened to rekindle fears about Japan's ability to finance a staggering national debt, one of the biggest among rich nations. By the close, Tokyo's benchmark Nikkei 225 index had tumbled 1.62 percent, or 279.25 points, to 16,955.73. The broader Topix index of all first-section shares fell 1.28 percent, or 17.73 points, to 1,362.07. In currency trading, the dollar dived to 109.77 yen from 110.73 Tuesday in New York, while the euro plunged to 122.07 yen from 123.26 yen. A stronger Japanese currency is negative for Japanese shares as it deflates the value of exporters' overseas profits. In share trading, Toyota dropped 0.48 percent to 5,755 yen and Nissan lost 1.37 percent to end at 1,109.5 yen.