"With many households nervous over future prospects, a potential rise in the consumption tax, sluggish (if negative when normalized) gains in wages and decreased consumer confidence in June, economy watchers should now be worrying whether these two reports might prove to be a nail in the coffin of an August interest rate hike by the Bank of Japan."
My sense from a US perspective, is that an arcane topic such as Japan's tax policy just doesn't cut it at the editorial desks of US media outlets at this time. Trade issues with China, the housing/mortage collapse, the Iraq war, oil prices, the seeming free-fall that is taking place at the three US automakers are all affect the US investor much more directly.
It is no wonder that domestic GDP in Japan is weak, given the factors listed above. I can understand the poll results showing that the public thinks interest rates are too low. The BoJ's interest rate policy at this time is to ensure that exports are not damaged by yen strength, particularly due to an unwinding of the carry trade. Significant rate hikes by the BoJ would almost certainly spark an unwinding of said carry trade, jacking up the yen and damaging the profitability of the country's export sector (which is the only thing holding Japan's GDP in positive territory). This is a continuation of Japan's long-standing policy of short-changing its domestic markets to benefit the export sector.
The Japanese public would obviously like to see interest rates higher so that they can realize better returns on their savings without exposing themselves to exchange rate risk. However, as various news reports indicate, the public is starting to engage in the carry trade themselves, as they likely don't see the BoJ's interest rate policy changing anytime soon. In addition, the impending collapse of the Abe government is seen as delaying any interest rate movement in the near term as well.
Japan is in an economic trap at this time; any major changes in policy will cause extreme volatility for the public, business, and the government. The current policy of not making any significant changes may provide short-term stability, but eventually difficult changes will occur.
