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May 28, 2017

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Japanese consumers wary ahead of tax hike

TOKYO -- Buy now or pay more later: Japanese retailers are luring customers with promises of steep discounts ahead of a sales tax hike Tuesday that economists expect to slow but not derail the recovery of the world's third-largest economy.

It's a gamble Japan cannot afford to take, given its soaring public debt.

Japan's sales tax will rise from 5 percent to 8 percent. It is the first such increase since 1997, when the combination of the tax hike, an unwinding of debt from Japan's bubble economy days and the impact of a regional financial crisis plunged the country into recession.

The 'Abenomics' strategy of Prime Minister Shinzo Abe aims to spur inflation and pull Japan out of its two-decade economic slump by getting consumers and businesses to make purchases sooner rather than later. But so far wages have not risen, and the rising cost of living seems to be triggering still more belt-tightening.

Buying ahead isn't likely to result in much of a saving overall, said housewife Kyoko Takahashi, 77, doing her daily shopping in the vegetable section of a supermarket in Urayasu, a Tokyo suburb. "Besides, I could end up buying something which I don't need."

Japanese television networks and newspapers are running features about which products to buy in advance, generally big ticket items where the cost increase will pinch most. The consensus: hoarding relatively cheap daily necessities such as toilet paper and soy sauce makes little sense for typically cramped homes with limited storage space.

The tax hike is needed to help cover soaring costs for pensions and health care as well as massive government stimulus spending meant to force the economy out of the doldrums. Japan's gross public debt is more than 1 quadrillion yen (about US$10 trillion), or nearly 250 percent of gross domestic product.

The strategy could backfire, however, if the economy plunges again into recession.

Household spending fell 1.5 percent in February from a year earlier, suggesting consumers are saving rather than spending ahead of the sales tax hike. Relatively cold weather and two big snows in the Tokyo area also put a damper on car sales, one of the biggest factors in such data.

Industrial output unexpectedly fell 2.3 percent in February from a month earlier, which Harumi Taguchi of HIS Global Insight said was possibly due to a winding down of construction after last year's public works building boom.

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