InsideJapan News Network

A fund based in Washington has said that Japan should put in place a consumption tax increase in order to help tackle the nation's huge debt, which is currently twice the size of its annual economic output.

The International Monetary Fund wants the country to move forward with the tax plan, despite the idea being one of the main reasons why prime minister Naoto Kan and his party have lost their majority in the upper house after a key election vote.

Many in the country feel that Kan - who used to be finance minister - is being over zealous with his debt tackling measures, despite the levels at which the national debt currently stand.

Under Kan's proposal, Japan's five per cent consumption tax would be doubled. Even though the election did not swing in favour of his party, finance minister Yoshihiko Noda said that such rises are inevitable.

Rating agency Standards & Poor's has warned Japan that it may be forced to lower its credit rating, following the ruling party's upper house loss.

Written by Kimberley Homer.