Retail sales fall as Japan tax rise bites
Retail sales in Japan fell at a record pace in April, after the government pushed ahead with the first consumption tax rise in 17 years to repair its tattered finances.
Preliminary figures released on Thursday by the ministry of economy, industry and trade showed that sales by retailers in April dropped 13.7 per cent from the previous month, on a seasonally-adjusted basis, after the tax was lifted from 5 per cent to 8 per cent on April 1. That marked a high in records dating back to 2000, topping an 8.4 per cent fall in the aftermath of the March 2011 earthquake.
However, the fall came after a 6.4 per cent jump in March – also a record – as shoppers brought forward purchases to avoid the higher tax. Average sales over March and April were still up 0.9 per cent from the average in the fourth quarter last year, noted Masamichi Adachi, economist at JPMorgan.
“We do not think the Bank of Japan and the government will take this reading as a decisive sign of weakness,” he said.
Analysts say that economic data for the July to September quarter will provide a better guide for the government as it decides whether to press ahead with a second increase in consumption tax, to 10 per cent, effective in October 2015.
That decision is expected in the autumn.
In the hours after the data were announced the yen strengthened against the dollar, suggesting that traders were pushing back expectations for further easing action from the BoJ, while stocks were flat.
The fiscal squeeze comes amid a concerted effort by Prime Minister Shinzo Abe to banish deflation from the world’s third-largest economy, through aggressive fiscal and monetary stimulus. Since Mr Abe took the helm at the tail-end of 2012, Japan has recorded six consecutive quarters of nominal growth – something it had not managed for the previous two decades.
Meanwhile, a steep rise in corporate profits caused mainly by the weaker yen has boosted tax receipts, causing markets to take a more sanguine view of Japan’s huge government debt burden, equivalent to more than twice gross domestic product. The price of protecting Japan’s five-year debt against default has more than halved under “Abenomics”.
Institutions such as the IMF and the OECD have warned, however, that the two-stage tax rise is just one of many measures that Japan needs to take to hit its target of eradicating its primary deficit – the gap between revenues and spending, excluding debt-service payments – by 2020.
In coming weeks a council led by Tokyo University professor Hiroshi Yoshikawa will report on ways to trim social-security costs – recommendations that are expected to feed into the second round of the government’s growth strategy, due by the end of June.
As expected, big-ticket items bore the brunt of the fall in demand in April, with sales of cars and machinery falling 10 per cent and 12 per cent from a year earlier.