Many economic bumps ahead for Japan

Japanese Prime Minister Shinzo Abe has said the economy is on a slow recovery, going by the data for October, despite low consumption levels, and declining auto production and sales. Many economists, however, say Japan's economic growth would be around 1 percent for the whole of 2014, which means the failure of Abe's economic policy, known as "Abenomics", because last year the growth was higher.

Abenomics is aimed at increasing exports through a series of measures, including continuous depreciation of the yen. But instead of increasing, Japan's exports in the second quarter fell by 0.4 percent year-on-year, the first time decline in three quarters.

Next month, the Japanese government is likely to announce a plan to raise sales tax from the existing 8 percent to 10 percent in October 2015 if Japan's third-quarter GDP growth is more than 3 percent and other factors remain constant. But the increase in sales tax will hurt the Japanese economy, just like the tax hike in April did.

This has put the Abe government in a dilemma. If Japan postpones the tax hike, aimed at stabilizing the country's economic recovery, as suggested by Chief Cabinet Secretary Yoshihide Suga, it would seem the government is admitting the failure and abandoning of Abenomics, which would further dent market confidence and put Abe in an extremely disadvantageous position.

On the other hand, if the sales tax is raised to 10 percent, it will have severe repercussions for and could even cause irreparable damage to the Japanese economy, and thus influence the results of the election for a new Liberal Democratic Party head next fall.

Abe, however, is unlikely to admit defeat so soon and, instead, could soon announce that sales tax would be increased in October 2015. To preempt repercussions and prevent the economy from taking a severe blow, he could even announce a new 1-trillion-yen ($9.25 billion) stimulus package.