Japan consumers cautious on spending despite expected limited drag from sales tax increase
- Nation set to increase its sales tax from 8 per cent to 10 per cent on October 1
- The impact of the tax increase on consumer spending is important because private consumption accounts for 60 per cent of Japan’s gross domestic product
A Japanese sales tax increase that will take effect on Tuesday is expected to have only a limited negative impact on consumer spending compared with a larger increase five years ago, but data suggests households are tightening their purse-strings amid weak consumer confidence and concerns about the sustainability of government social security programmes.
Retailers have been cautious about offering aggressive discounts before the consumption tax is lifted from 8 per cent to 10 per cent on October 1, weary of stoking a boom-and-bust cycle that pushed the economy into a sharp contraction in the April-June quarter of 2014 after the same tax was raised to from 5 per cent 8 per cent on April 1 of that year.
The impact of the tax increase on consumer spending is important because private consumption accounts for 60 per cent of Japan’s total domestic output.
Many consumers are sitting on the sidelines ahead of the tax increase and retailers and restaurants are planning discount sales after its implementation to support spending.
The timing of this tax hike, in October, is better than the previous increases in April [in 2014 and 1997] in terms of avoiding rush purchases before the hike and a slump afterwards
To cushion the impact of the increase, food and non-alcoholic beverages consumed off-premises, as well as drugs and physical newspaper subscriptions will be subject to a lower 8 per cent tax. Smaller shops will be supported with a point-reward system for cashless purchases.
