Japan should assess 'tankan' before deciding to implement tax hike - PM ally

By Linda Sieg and Ami Miyazaki

TOKYO (Reuters) - Japan should assess various economic data, including the Bank of Japan's quarterly "tankan" survey due on July 1, before deciding whether to implement an increase in the sales tax in October, a senior ruling party lawmaker close to Prime Minister Abe said on Thursday.

Even if the planned increase to 10% from 8% was delayed, the premier would not necessarily need to call a snap election for parliament's lower house to seek voter understanding, Koichi Hagiuda, acting secretary general of Abe's Liberal Democratic Party, told Reuters.

Asked if a decision to delay would need to be made before an upper house election this summer, Hagiuda said "of course."

Speculation has been simmering that Abe might decide to delay the sales tax rise to avoid a hit to consumption amid worries about an economic slowdown, and call a snap lower house poll to coincide with an upper house election this summer.

"We should take a good look (at the 'tankan')," Hagiuda said.

The central bank's "tankan" released on April 1 showed business confidence at big Japanese manufacturers has worsened in March from three months earlier and sentiment was expected to deteriorate further in the next survey.

"To first ensure tax revenue despite the possibility that the economy may not go well would be to mistake the means for the end," Hagiuda said.

Hagiuda said it would be best if the tax hike could go ahead as planned. The government would need to get public understanding for a delay, he said, but added that could be done through the upper house election.

Abe has already delayed the sales tax rise twice, most recently in 2016, when he announced a postponement ahead of an upper house election. He has repeatedly pledged to go ahead with the rise this time barring a huge economic shock.

Were Abe to call a snap lower house election, he would want to seek a mandate for a major policy, such as his push to revise the pacifist, post-war constitution to clarify the ambiguous status of Japan's military, Hagiuda said.

Article 9 of the constitution, if taken literally, bans the maintenance of armed forces but has been interpreted to allow a military for self-defence.

Worries about the economy have grown as Japan's exports and factory output have been hit by China's economic slowdown and escalating U.S.-China trade friction.

(Reporting by Linda Sieg and Ami Miyazaki)