Japanese Sales Tax Hike Results in Retail Sales Surge in March

Retail sales in Japan grew at the fastest pace in 17 years in March as consumers rushed to make purchases ahead of the sales tax hike in April.

Sales jumped 11% during the month, from a year ago – the most since March 1997.

Japan raised its sales tax, also known as consumption tax, to 8% from 5% from 1 April, the first hike in 17 years.

The hike comes as Japan has been looking to rein in public debt, while facing rising social welfare costs linked to an ageing population.

Japan’s public debt, which stands at around 230% of its gross domestic product (GDP), is the highest in the industrialised world.

Inflation trigger?
The rise in sales tax is also seen by many as helping Japan achieve its 2% target for inflation.

Unlike many other leading economies, Japan has been battling deflation or falling prices for the best part of the past two decades.

That has hurt domestic consumption as consumers and businesses tend to put off purchases in the hope of getting a cheaper deal later on.

Policymakers have said ending that cycle is key to reviving growth in the Japan’s economy and have taken various steps to achieve that.

The measures have had some positive impact and consumer prices have been rising in Japan.

The hike in sales tax has also helped fuel some of that growth.

Preliminary data released last week showed that consumer prices in Tokyo rose 2.7% in April, from a year ago, the fastest pace of growth in 22 years.

via BBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza