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Japan PM Abe vows to keep cautious watch on tax hike's impact

[September 29, 2014] TOKYO (Reuters) - Prime Minister Shinzo Abe said on Monday that he will carefully watch the impact of April's sales tax hike and rising fuel prices on the economy, as he must decide by year-end whether Japan can cope with a second tax increase next year.

Speaking at the opening of a parliament session, Abe reiterated his pledge to put top priority on economic policy aimed at beating nearly two decades of deflation, saying that he is still at the halfway point in carrying out regulatory reforms.

"We are aiming to revive the economy and proceed with fiscal consolidation at the same time, and ensure a virtuous cycle in the economy," Abe said.

"A major mission of the Abe cabinet is to make people in every corner of the country feel the economy's recovery."

A sales tax rise to 8 percent from 5 percent in April pushed the economy into its deepest slump in the second quarter since the 2009 global financial crisis, raising some worries that a second hike to 10 percent could hit the economy harder.

Abe said this month that he was neutral on whether to implement the second tax hike and that he would make a decision by examining economic data in the current quarter.

Turning to diplomacy, Abe renewed his calls for a summit with Chinese President Xi Jinping, and vowed to improve ties with China and South Korea, countries angered by territorial disputes with Japan and Abe's approach to Japan's wartime past.

Abe, who came to office in December 2012, has not met bilaterally with the leaders of China and South Korea since taking office. Abe is keen to meet Xi on the sidelines of a November Asia-Pacific summit in Beijing.

"In order for Japan and China to build a stable friendship, I'd like to achieve a summit at an early stage and further promote a mutually beneficial relationship based on common strategic interests through dialogue," Abe said.

(Reporting by Tetsushi Kajimoto; Editing by Linda Sieg and Chris Gallagher)

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