People walk through a shopping district in Osaka. Photo: REUTERS file
business

Japan's retail sales post sharpest fall since 2015 as tax hike hits demand

51 Comments
By Daniel Leussink

Japan's retail sales tumbled at their fastest pace in more than 4-1/2 years in October as a sales tax hike prompted consumers to cut spending, raising a red flag over the strength of domestic demand.

The Japanese government increased the nationwide sales tax to 10% from 8% on Oct 1, in a bid to fix the industrial world's heaviest public debt burden, which is more than twice the size of the country's gross domestic product.

However, some analysts have warned the tax hike, previously postponed twice, could leave the economy without a growth driver amid a slump in exports and production and as other factors drag on the consumer sector.

Retail sales fell 7.1% in October from a year earlier, pulled down by weak demand for big ticket items such as cars and household appliances as well as clothing, trade ministry data showed on Thursday, with department stores hit particularly hard.

The drop was the biggest since a 9.7% fall in March 2015 and worse than a 4.4% decline predicted by economists in a Reuters poll.

"Regardless of today's outcome, consumption has been of a weak tone, and consumer sentiment is getting worse," said Taro Saito, executive research fellow at NLI Research Institute.

"Incomes haven't been rising originally, so consumption hasn't been growing since before the sales tax hike."

The slump was also sharper than the declines reported after the previous two sales tax hikes, in 1997 and 2014, suggesting other factors are dragging on consumption.

"Retail sales fell more sharply in October than after previous sales tax hikes," said Tom Learmouth, Japan economist at Capital Economics.

"The fall in sales was slightly larger than the 13.7% m/m plunge which followed both the 1997 and 2014 sales tax hikes," he wrote in a note. Sales fell 4.3% in April 2014, the month of the previous tax hike.

Seasonally-adjusted retail sales dropped 14.4% month-on-month in October, the data showed.

The negative reading comes after separate data this month showed Japan's economy nearly stalled in the third quarter, while exports in October shrank at their fastest pace in three years.

The gloomy conditions have led to calls for the government to compile a big spending package to keep the country's fragile economic recovery on track.

PRICE PRESSURES PERSIST

The 2014 previous tax hike to 8% from 5% hit the broader economy hard as households tightened their purse strings after front-loading purchases before the hike.

Policymakers this time around do not expect the October tax hike to trigger such a big swing in demand, given the smaller hike and various measures to help offset the hit to spending.

However, analysts said retail sales in October were also hit by poor weather, after a huge typhoon ripped through central and eastern Japan, forcing stores and restaurants to temporarily close.

Others also noted more structural pressures faced by retailers even before the sales tax hike, such as the prolonged decline in real wages.

Data earlier this month showed inflation-adjusted wages rose 0.6% in the year to September, their first increase since the end of last year.

All those factors pose challenges to a government seeking to shake consumers out of a long-entrenched deflationary mindset, which has weighed on prices, hurt company profits and established a prolonged regime of ultra-easy monetary policy.

Adding to these woes is the risk retailers will continue to cut prices to offset the hit from the tax hike, while many stores are also offering discounts for cashless payments.

The government has introduced a rebate program for cashless transactions designed to both soften the tax hike blow to retailers and encourage Japanese consumers to use electronic payments instead of cash.

Other retailers are simply reducing prices to lure customers.

"This could spark stiff price competition and induce deflation. Small firms that lack competitiveness will be forced out of business," Yukio Kawano, the head of Japan Supermarket Association, told Reuters.

© (c) Copyright Thomson Reuters 2019.

©2019 GPlusMedia Inc.

51 Comments
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Surprise it's not, said the Jedi master.

Salaries decreasing, prices increasing, but the ones on the "rich side" got it made!

24 ( +24 / -0 )

I mean even a simpleton can understand that higher prices means less spending , means less tax revenue, but no the J governement thinks raising taxes is going to fix Japans wasteful spending issues

18 ( +18 / -0 )

What a surprise!

Only complete ignoramuses didn’t see this coming.

16 ( +17 / -1 )

Geez told ya so! Waiting for the "I (heart) Japan" fan club to explain this one away!

13 ( +13 / -0 )

I’m shocked that a tax increase would actually negatively impact an already deflationary economy -amazing!

12 ( +12 / -0 )

Gees! This article could have been written three years ago when this increase was first postponed. Wait until the increases in city tax, health insurance and pension increases hit next year. If you have a choice, get yourself, your family and your money out of Japan asap coz the poop is really gonna hit the fan after the Olympics.

14 ( +14 / -0 )

And all along here Abe looked to soften the blow by offering consumers all sorts of points and what not, if they went cashless.

Abe really is clueless about the economy here! But I bet any money, it wont affect his polling numbers much!

12 ( +12 / -0 )

You didn't need to be a rocket scientist to foresee this, it was just obvious. The only ones who apparently are surprised are the Japanese government and the nationalists coming to this site. The income of the majority of the population here is too low to easily absorb such sudden increase in prices even moderate (from 8% to 10%), and that tells a lot about the state of Japan.

12 ( +12 / -0 )

The Japanese government increased the nationwide sales tax to 10% from 8% on Oct 1, in a bid to fix the industrial world's heaviest public debt burden

Stop with this BS, this country will never be able to fix the debt issue by just increasing the sales tax. It's a fact. The Japanese government has spent decades ruining the country and the population will have to pay a high price for that at some point. And this will be painful for them, very painful.

14 ( +14 / -0 )

No no.....I refuse to believe this..just a few days ago NHK reported that the downturn after this latest hike is less severe than previous times...and now this?....NHK never lies and Jgovt never fudges stats...impossible.

12 ( +12 / -0 )

Wasn’t the IMF recommending 20%?

4 ( +4 / -0 )

Well, what an astonishing surprise! Who could have possibly imagined this? Oh that's right - anyone with a pulse.

Abenomics - the miracle that keeps on giving.

10 ( +10 / -0 )

Wow surprise surprise! NOT!

5 ( +5 / -0 )

Quick, somebody tell the IMF. They'll help the same way they did in Argentina.

5 ( +5 / -0 )

some analysts have warned the tax hike, previously postponed twice, could leave the economy without a growth driver amid a slump in exports and production and as other factors drag on the consumer sector.

Unfortunately those warnings fell on deaf ears.

Wasn’t the IMF recommending 20%?*

Yeah. The IMF are what I consider to be educated idiots.

7 ( +7 / -0 )

It's just Abonomics,? Pathetic and destructive but Abenomics. Really just raise wages. Instead an urge to raise wages, that worked out well. But raise tax so less money to spend and it's a disaster, great job Mr biggest debt in the world.

6 ( +6 / -0 )

BoJ should just send everyone 500,000 to spend.  They have tried everything else.

6 ( +8 / -2 )

Man,

Abe and the LDP have to go.

Things can't keep going on like they are.

The kicking the can down the road is becoming even noticeable to the apathetic locals.

5 ( +5 / -0 )

Wakarimasen,

They have tried the same things over and over again,like spending tons of cash on roads and bridges.

I don't think they have tried 'everything',simply because they aren't capable of thinking outside of the box.

4 ( +4 / -0 )

Let’s see what happens when that baby hits 20%!

4 ( +4 / -0 )

We're running out of arrows, please send more x x

“I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” ― Winston S. Churchill

7 ( +7 / -0 )

Its not all doom and gloom. There is always a short term dip in consumer spending after a tax hike. But it is temporary as history tells us.

With Tokyo 2020 just around the corner, plus salary bonus, and New Year gift buying, expect an uptick in spending real soon. Promising times ahead.

-19 ( +1 / -20 )

You’d think the Japanese govt would know by now the instincts of the Japanese people. A people, who absolutely from day dot, saw this as an opportunity to raise a collective middle finger at the tax policy.

Then again, if the LDP pay for everyone’s Ohanami, kaaaa-CHING!

4 ( +4 / -0 )

But this will turn into an UPward trend if we raise the sales tax to 20%.

1 ( +1 / -0 )

With Tokyo 2020 just around the corner, plus salary bonus, and New Year gift buying, expect an uptick in spending real soon. Promising times ahead.

Ticking along nicely then eh? I admire your devotion to your leader, sort of.

4 ( +4 / -0 )

As night follows day expect the next piece of govt stats to show some positive indicator , whatever it maybe to try make it look like LDP has at least a little grip...of course we can also all get ready for another record supplementary budget pork barell with more of the same gifts to J Inc under the guise of tax breaks for housing , cars and of course the indespensible construction splurge excused as ' reconstruction or disaster prevention or whatever else...with a few billion thrown to the farmers of course.....Hail to the next LDP election victory.

With Tokyo 2020 just around the corner, plus salary bonus, and New Year gift buying, expect an uptick in spending real soon. Promising times ahead.

Always entertaining ...thanks gambare...now just waiting for alwaysspeaking....to pop in with a useful overseas comparison .

5 ( +5 / -0 )

I see allot of the same anti-Trumpers commenting on the tax increase in Japan, and its effect, but if the Dems win, expect the same thing to happen in the US.

They will just return to their old ways

-3 ( +3 / -6 )

according to many, Corporations are sitting on record levels of cash. Figure out a way to get them to disperse? or will the savers just hoard it? I have no idea how to fix this place

1 ( +1 / -0 )

@Ganbare Japan! - Its not all doom and gloom. There is always a short term dip in consumer spending after a tax hike. But it is temporary as history tells us.

As history tells us? Which version of history are you referring to? The factual one or the delusional one? The factual one states that most department stores had a drop in sales up 25% after the first sales tax hike and they never recovered. There has been zero growth in the economy since 2008. There are only three or four months a year showing an account surplus. The rest of the year shows a deficit or no growth at all. It's one thing to base your delusional economics on a month by month status or even a yearly status pretending the Olympics are going to drag the Japanese economy out of its slump. A country's economy is measured in decades and Japan has been in a downward spiral for the last four decades. Salaries are 20% less than they were twenty years ago, but the cost of living has increased by 25%, plus the sales tax. I'm afraid it is all doom and gloom. Post-Olympics Japan is going to see a major increase in unemployment and the boost to the economy from foreign visitors will be very short lived. By 2002 at least 50% of Japan's population are gonna be broke!

10 ( +10 / -0 )

Edit: By 2022 at least 50% of Japan's population will be broke!

3 ( +4 / -1 )

Wasn’t the IMF recommending 20%?

actually the experts stat that the tax needs to be raised to 25%+ yesterday for any chance of balancing the budget, while it isnt impossible it is if Japan want to basically destroy its economy beyond repair

1 ( +1 / -0 )

wtfjapan - actually the experts stat that the tax needs to be raised to 25%+ yesterday for any chance of balancing the budget, while it isnt impossible it is if Japan want to basically destroy its economy beyond repair

I think Japan passed that threshold twenty years ago.

3 ( +3 / -0 )

The government is doing all it can to signal the people that things aren't going well. What would people do ? Save like mad.

0 ( +0 / -0 )

Meanwhile we keep hearing how much cash companies are sitting on. How about taxing that instead?

3 ( +3 / -0 )

Disillusioned makes allot of valid points. Japan sometimes has a way of surprising but I think in this case the writing is on the wall. Im seeing the continuation of shuttering businesses, but perhaps there is development in Azabu, Roppongi Hills or Odaiba or somewhere else. Perhaps a war or participation in one, defense industry and increased tourism campaigns will spark something, who knows. In Japans case, extreme protectionism seems to have sputtered out. Maybe some radical deregulation of the real estate industry, more incentives for cheap foreign labor and international communities.. I dont know.

0 ( +0 / -0 )

Get ready for tomorrow's article of the government saying "It could not have been predicted" and, "that they can't understand why the Japanese are not carrying out their RESPONSIBILITY and spending for the economy regardless of how it might hurt them". Then prepare for talks of another tax increase to make up for the lack of funds predicted to have come in after the tax hike.

I'd laugh, if it weren't always me and every other person here paying more for the stupidity of these politicians.

4 ( +4 / -0 )

"Regardless of today's outcome, consumption has been of a weak tone, and consumer sentiment is getting worse," said Taro Saito, executive research fellow at NLI Research Institute.

And, the government decided to throw fire on the flame. Genius!

People have really cut spending everywhere. They are going to keep pinching their money, because nobody has extra money. Not only have taxes gone up but consumer products have also increased prices together. Worst of all, wages have remained the same, so don't cry when the economy tanks.

Japan isn't doing well, and everyone knows it. Domestic spending is declining, international investments are drying up. How are you supposed to recoup from that.

3 ( +3 / -0 )

The problem is that Japan already has the highest prices in the World for basic things, and for "luxury" items the price is astronomical. So any additional tax hike is going to have an impact upon spending habits.

3 ( +3 / -0 )

Tax and spend, repeat. Recipe for a country’s downfall. Hey Venezuela.

5 ( +5 / -0 )

With Tokyo 2020 just around the corner, plus salary bonus, and New Year gift buying, expect an uptick in spending real soon. Promising times ahead.

Ticking along nicely then eh? I admire your devotion to your leader, sort of.

Where’s a ¥1,000,000 crab or melon when you need one?

One of those sales usually boots the economy no end, doesn’t it?

/s

0 ( +0 / -0 )

kibousha - The government is doing all it can to signal the people that things aren't going well. What would people do ? Save like mad.

Yes! save you money at home as cash and send it overseas to banks where you get s return on your savings.

@Kentarogaijin

 If you have a choice, get yourself, your family and your money out of Japan asap coz the poop is really gonna hit the fan after the Olympics.

By 2022at least 50% of Japan's population are gonna be broke!

Cut the drama ladies..

Drama? Why is it that every Japanese person who posts in this thread refuses to accept the reality of Japan's pending economic doom? Most Japanese are already paying upwards of 50% of their salaries in taxes, health insurance, the pension scam and all these taxes will increase next year. The middle class is shrinking rapidly. Over 50% of families have no disposable income. Over 60% of the workforce are on short term or part time salaries, many of which are being forced to work themselves to death just to keep their jobs. The pension system is a huge failure and most people will only receive pittance pension for a few years after retirement. And, let's not forget that 25% of Japanese kids are living in poverty. This might be normal for Japan, but it is far from normal by international standards. Yeah, no drama there - if you are Japanese suffering from cultural blindness, of course..

3 ( +3 / -0 )

Prices rise, demand falls, simple economics. Lets save tax money by letting the Americans pay for their own bases. Japan needs to cut expenses at all costs!

0 ( +1 / -1 )

So how many are shocked ? Of course and I think they will lose more taxes as higher tax with alot less buyers. We had same earlt 90s congress passed a luxury tax on highline autos, boats and other items. Americans stopped buying them, Many went out of business of overseas to manufacture lower costs so they got no income tax from workers loss too. Americans as they age are fleeing high tax states like NY, IL, CA and most of NE and West coast. Some states like New Jersey have exit taxes :) and they have almost non funded pensions taxpayers will bear soon. https://fee.org/articles/americans-are-leaving-states-with-high-tax-rates-data-show/

0 ( +0 / -0 )

How much stuff does one need?

0 ( +0 / -0 )

I don't live in Japan but have traveled there several times the past few years. The prices are quite noticeably higher now (for everything) from the last time I visited last year. I guessing the prices for things with top out at the 2020 Olympics.

3 ( +3 / -0 )

Where’s a ¥1,000,000 crab or melon when you need one?

One of those sales usually boots the economy no end, doesn’t it?

If one of those sales actually affected the economy overall we really are in a bucket of guano!

0 ( +0 / -0 )

Prices rise, demand falls, simple economics. Lets save tax money by letting the Americans pay for their own bases. Japan needs to cut expenses at all costs!

You think it's "simple" economics? Right and if the bases left, you can bet your life that the defense budget of Japan would explode even higher than it is today! All while being said from the comfort of your home in America!

1 ( +1 / -0 )

I call this story BS and misleading. IMHO, The trade war and its impact on export has a much more direct correllation to a softening consumer sentiment (and retail spending) than the consumption tax hike.

In fact, there are economists (including ex reserve banker) who are saying Japan needed to do it rather than fool around with ineffective monetary policies (interest rate).

-1 ( +0 / -1 )

Time for people here to say good bye to Abe and to Corrupt Politicians and ask themselves ... where does all the money go ?

0 ( +0 / -0 )

@YuriOtani - Sure, why not ask them American forces to leave Japan. Wonder if there'd be any impact - what do you think ?

0 ( +0 / -0 )

Most Japanese are already paying upwards of 50% of their salaries in taxes, health insurance, the pension scam and all these taxes will increase next year.

Not only those taxes, Japan is the land of fees. Pay for parking, now even at many restaurants. pay for reikin, atamakin, pay for toll fees, pay to have your non combustible trash hauled off, pay for hokin and shakkin. If you own any business, so many fees and registrations.

0 ( +0 / -0 )

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