Japan's economy shrinks after sales tax hike

Companies are being really opportunistic and charging way higher for many items than the tax hike. Another article mentioned as high as 20% but have seen some items gone up more than 50%.......that is a ridiculous amount! Hope those companies overcharging get their just desserts!

Anyone surprised after prices went up?

The take hike is ruining the recovery, and dragging down the economy and hurting us all.

The ironic thing is that more tax revenue would have been collected without the hike, from higher GDP growth that was seen before the hike. An idiotic policy, to be sure.

Japanese Companies rip-off Japanese.Plain and simple. Makes no sense.The only thing Japanese companies care about is "cost performance". If the Japanese people don't stand up soon and realize that they are totally being hoodwinked by old outdated and highly unstable government policies...................same old story

The take hike is ruining the recovery, and dragging down the economy and hurting us all.

I think you meant tax hike JeffLee.

No wait, maybe you did mean take hike! The government just takes, takes, takes! And the taking has been hiked! But I wish they would just take a hike!

Freudian slip?

ROFL at Abenomics.

Abe doesn't care right now--all he's thinking about is 15 August and Yasukuni Shrine. The man's priorities have never been focused on economics and never will be.

Abenomics has failed. Toyota will reduce production in Japan next year despite the devaluation of the Yen and the proposed cut in corporation tax. Abe's "policies" were targeted at companies like Toyota, but have done nothing to improve the economy, which continues to shrink, along with salaries.

We are all poorer thanks to Abe's devaluation of the Yen and increase in the consumption tax. Instead of using the increased consumption tax revenues to reduce the budget deficit Abe has increased spending on useless building projects (that pay bribes to the LDP).

It's time Abe was thrown out, but amazingly the people still seem to like him. They must be masochists, I can't see any other reason for his level of support.

Kuroda going to be printing overtime again soon.

Personally I'd be all for the government cutting 5 trillion out of it's annual budget instead of hiking the sales tax again next year.

Jeff,

The ironic thing is that more tax revenue would have been collected without the hike, from higher GDP growth that was seen before the hike.

We'll have to check that when revenue figures are available (I presume they are not, yet).

Surely the higher GDP growth prior to the hike came about largely because there was going to be a hike.

Starbuck's One More Cup regular refill before and after that 3% tax increase:

Pre-hike: ¥100

Post-hike: ¥108

PURE GREED, Howard Schultz

While the April-June figures—which translated into a 6.8% contraction on an annualised basis

it's terrible just terrible...! lucky are those who have left for Obon Holidays before reading/hearing this news.

"Ladies and Gentlemen - Japan is Back!" - Shinzo Abe.

Pre-hike: ¥100Post-hike: ¥108

As with many if not most vending machines as well. Since vending machines do not take 5 or 1 yen coins the prices were raised 10%. The problem now is what will the public do when Abe jacks it to 10% and the same vending machine companies raise their prices to supposedly cover the additional cost.

Japanese people in general still have it good, it's when people really start to feel the pinch in their own bank accounts and their money slowly becomes worthless that they start to seriously protest.

"Anyone surprised after prices went up?"

Nope!

Anyone with even as little as 5% of a functioning brain predicted this return to recession, or likely depression, due to Abe's following stupid Keynesian thinking.

In the words of Forrest Gump, "Momma always said, Stupid is as Stupid does."

A FEW people, well-well-connected to Abe's inner-circle, are making out like bandits at the expense of the rest. Cronies rule.

@Yubaru annualized is -6.8% since it shrank -1.7% in the quarter

Companies are being really opportunistic and charging way higher for many items than the tax hike. Another article mentioned as high as 20% but have seen some items gone up more than 50%.......that is a ridiculous amount! Hope those companies overcharging get their just desserts!

Sorry, but it isn't the companies' faults here. You have to remember than unlike other countries, consumption tax in Japan is not applied only to the end consumer.

If Japan still want to stand out in Asian as before, the correct direction is to conduct structure reform, creation and technology upgrade.

Currency depreciation, inflation can only transfer the wealth, it can't create wealth.

Data on Wednesday is expected to show the economy shrank at a 7.1% annualised rate in the second quarter as the tax hike hit consumption, according to a Reuters poll. The biggest drop since the global financial crisis would more than reverse the first quarter’s surge ahead of the tax rise.

Ok which is right?

http://www.japantoday.com/category/business/view/japanese-firms-finally-get-pricing-power-just-as-economic-growth-sputters

"Ladies and Gentlemen - Japan is Back!" - Shinzo Abe"

Japan WAS back, when he said it, in February 2013. That was the consensus at the time. Then came the tax hike, which has ruined everything.

"Surely the higher GDP growth prior to the hike came about largely because there was going to be a hike."

A small part was, in the 3 months before april 1, 2014. But the economy grew consistently throughout 2103. That growth was supposed to have laid the groundwork for the recovery. So now it's back to square 1.

yappari....raising taxes before the economy improved was a mistake...the real problem though is the size of the debt and government.

The negative impact of the extra tax, opted for to start work on fixing Japan's finances, is precisely why Abe needed to spark the economy with a heavy agenda of deregulation and reform. I fear he's blown his chances now, with his popularity on the decline.

"Abenomics has failed."

The tax hike isn't part of Abenomics. Abenomics is about stimulating and liberalizing the economy. The tax hike is about removing our purchasing power to shift some balance sheet numbers.

Predicting this was like sleepwalking. The inevitable was obvious. Should spending continue to be conservative watch for discounts amidst the price hikes.

I disagree (as does the OECD). Japan's current simple implementation of sales tax is the best way to go. Making it complicated half defeats the purpose.

Ideally there would be no sales tax, but Japan's reality is that there's a quadrillion yen of debt, and growing, and this needs to be stopped. Personally I would favour major spending reforms to cut the government's spending, but a sales tax is still better than doing nothing or doing it half-a'd.

More taxation always depresses the economy, no matter in what form. The politicians all know this too. It's always calculated risk. For them, it's all about timing.

Nothing in this world comes for free and a rising cost of living is a part of life.

cracaphat, living costs driven up by taxation aren't "part of life". In life, prices go up as demand increases for a limited/scarce supply.

People want the debt to be paid down. The reason for the complaining is because the government is taking more of their money out of the economy.

A growing economy produces more tax revenue. This tax hike, the next tax hike, and the more that will surely follow: all counter-productive. Largely, because there's no reduction in spending, or taxation on income.

Two points: 1. "I told you so." 2. This story broke on August 12 in the financials in the USA. Why did it take so long for the Japanese to see it?

Abenomics is about stimulating and liberalizing the economy.

Close, but incorrect! Abenomics is about the BOJ trying to pump up the economy and Abe talking about liberalizing it. The government is too big and full of useless bureaucrats for Abenomics to live up to it's billing. Japan's hopes lie solely in the prayer of a global economic boom.

The tax hike is about removing our purchasing power to shift some balance sheet numbers

Even the IMF and OECD get this. There's no free lunches. The people let the government run wild for years following useless policies, but in real life it's not like a board game where you get to just start from scratch.

"The people let the government run wild for years... "

The most powerful economic legacies in modern times are from Reagan and Thatcher. So I agree, "free market" policies over the last 30 years - which is when real wages started to stagnate - have screwed 90% of us.