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September 22, 2017

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Japanese shoppers brace for sales tax hike

TOKYO---Japan is bracing for its first sales tax rise in years, with last minute shoppers buying up a host of goods from gold to ice cream, as the government tries to tackle its crushing national debt.

Millions of shoppers are making a mad dash to stores ahead of Tuesday's tax rise to 8.0 percent from the current 5.0 percent amid fears the increase could spark the return of a protracted economic slump.

The last time Japan brought in a higher levy in 1997, it was followed by years of deflation and tepid economic growth.

The upcoming hike has created a tricky balancing act for Prime Minister Shinzo Abe as he tries to nudge the world's number-three economy out of the cycle of falling prices and lackluster growth with a growth blitz dubbed Abenomics.

On Friday, fresh data showed Japanese consumer prices rose again in February, suggesting Tokyo's efforts to slay 15 years of deflation was gathering steam.

But the increase was largely driven by rising post-Fukushima energy import costs, rather prices going up on the back of strong, across-the-board consumer demand — dubbed "good" inflation by some economists.

A key worry is that Japan's last tax rise deterred consumers and foreshadowed the drop into a cycle of falling prices — although other factors, including the Asian financial crisis, were also blamed. The slowdown saw Japan's powerhouse economy descend into a protracted slump.

Opinion is mixed over whether history will repeat itself.

Tokyo's special budget to counter a tax-linked slowdown and the Bank of Japan's unprecedented monetary easing were likely to offset a drop in spending, according to some analysts.

"Daily necessities may not be affected very much by the tax hike, but demand for cars, furniture and houses is likely to drop temporarily," said Kenji Yumoto, vice chairman of the Japan Research Institute.

"We'll see whether the inflation is good or bad only after we see the impact of the tax hike. If demand later recovers, that could lead to good inflation."

Few shoppers seemed inclined to wait for prices to go up in a country where consumers have become used to paying pretty much the same, year after year, for their televisions, beer and sushi.

Falling or static prices may sound great for household budgets, but Japanese wages have barely moved over the years and the cycle has meant shoppers tended to hold off buying in the hope of getting goods cheaper down the road. That, in turn, hurt producers and slowed economic growth.

Shoppers Go for Gold

The tax rise — a seemingly modest increase compared with many countries' consumption levies — has ushered in some less-than-typical shopping habits.

Staff at jewelry chain Tanaka Kikinzoku watched wide-eyed as gold sales surged five-fold this month from a year ago with customers converging on a shop in Tokyo's glitzy Ginza district so they could buy 500 gram (1.1 pound) bars for 2.3 million yen (US$22,500) apiece.

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