Japan: economy: Japan raises VAT: business cautious on short term outlook April 2014
Published 16 April 2014
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The Japanese Government increases consumption tax (VAT) from 5% to 8% on 1 April. This is the first increase in 17 years and is expected to generate additional tax revenue of 8 trillion Yen (£47bn).
The Bank of Japan’s Tankan survey which polls more than 10,500 businesses found that the business confidence levels improved over the last 3 months. For large manufacturers the survey reported 17 (was 16) and for non-manufacturing firms 24 (was 20) – the highest in more than 20 years. However, looking forward firms were much more cautious over the next 3 months. The survey reports 8 and 13 for manufacturing/non-manufacturing firms respectively, weaker than forecasts of 13 and 16.
0.1 Comment
The fall in business confidence was expected. Everyone has been predicting that Q1 2014 GDP will be higher, followed by a contraction in Q2 due to consumers bringing forward purchases to avoid the tax rise. Much of the public blames the previous 1997 VAT rise for derailing the (then) economic recovery. – hence much of the concern about what could happen to ‘Abenomics’ and how quickly the economy will bounce back.
It is also one of the reasons the Japanese Government passed a 5.5 trillion Yen (£32bn) stimulus package to offset the fall in demand. The stimulus should also result in stronger economic growth in Q3 GDP this year which will be a key decision point in confirming that the second stage of the planned VAT rise in October 2015 (from 8 to 10%) should proceed.
0.2 Disclaimer
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