Japan's recovery at risk of stalling on 'premature' tax rise fears Nobel economist Stiglitz

The warning came as Mr Abe pushed his "Abenomics" agenda aggressively in Davos, insisting that his radical policies have already been a huge success. "Japan's economy is about to break free from chronic deflation. This spring wages will increase, and higher wages will lead to greater consumption," he said.

"People are now more vibrant and more upbeat. It is not twilight, but a new dawn breaking over Japan,” he said.

Describing himself as a "drill-bit drilling through the hard rock of vested interests" he vowed to ram through the Third Arrow of Abenomics, a Thatcherite blast of reforms to shake up Japan's cosy corporate culture.

"No vested interest will be immune from my drill," he said. The farmers lobby is being broken as Japan prepares to join the Trans-Pacific Partnership with the US, while the electricity cartels will be opened in time for the Tokyo Olympics in 2020.

Yasuchika Hasegawa, head of Takeda Pharmaceutical, said the Abenomics mix of massive monetary stimulus with root-and-branch reform is exactly what is needed. "You have to do something unprecedented, otherwise you never break out of this," he said.

Mr Hasegawa said today's circumstances are "totally different" from the events of 1997, which took place against the background of the East Asian financial crisis.

The Bank of Japan did not take precautionary measures to offset fiscal tightening fifteen years ago. This time the BoJ is carrying out the most radical experiment in quantitative easing ever attempted by a modern central bank, buying $75bn of bonds each month -- as much as the US Federal Reserve in an economy two-and-a-half times smaller.

The bank aims to double the monetary base over eighteen months to 50pc of GDP, and crucially to push the growth rate of the broad M2 money supply above 3pc. If the current QE tsunami is not enough, it has pledged to do yet more.

The policy is a modern laboratory test of whether monetary policy can ultimately overpower the effects of fiscal tightening, without at the same time destabilising Japan's vast bond market. Nobody knows whether it will work.

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