First we'll start with GDP. Both nominal and real GDP growth during the four quarters directly preceding the tax increase are weaker in 2014 than in 1997 (note we are using consensus estimates to calculate Q1 2014 GDP). Nominal GDP growth is not materially weaker, but real GDP averaged almost 1% higher in the period leading up to the tax increase.
How does the makeup of GDP today compare with the makeup of GDP in 1997? Private consumption is about 6% higher today as a portion of total GDP than in 1997, and public spending is also higher today by 1.5%. Investment is lower today and trade now subtracts from GDP.
Next we'll have a look at the contribution to GDP growth from the various components from the year preceding each tax increase (i.e. where did the growth come from in 1996 vs 2013). From the table below we can easily see that growth going into 1997 was far more balanced than it has been recently. Growth in 2013 was mainly driven by private consumption and government spending and trade was a big drag.
Of the standard economic indicators we look at, only trade seems to be weaker today than in 1997. Keep in mind though that the recent rise in consumer and producer prices is mostly attributable to the depreciation of the yen leading import prices higher.
Finally, here is a look at the fiscal situation then and now. To say the Japan's fiscal situation has deteriorated would be an understatement. Public debt as a percent of GDP is 3.2x higher today and the budget deficit is 3.8x higher. If the Japanese economy weakens for whatever reason, there is little room for maneuver.
All in all, it appears that Japan is in a less favorable position today to absorb a tax increase than in 1997. GDP growth is weaker and has been boosted unsustainably by government spending. The other area of strength in the economy, private consumption, is now a larger portion of GDP today then in 1997 and was also the largest contributing component to growth in 2013. Private consumption is the area most likely to experience weakness from the tax increase since taxes disincentivize behavior. Note also that the tax increase in 2014 is 3% vs a 2% increase in 1997. Finally, if economic weakness does ensue, there won't be much the Japanese government could do on the fiscal side as an offset.