TOKYO: Prices rose across Japan yesterday as a controversial sales tax rise came into effect, with everything from beer to washing machines costing more, sparking fears a drop in consumer spending will derail a nascent economic recovery.
Tokyo hiked the levy to 8 percent from 5 percent as it looks to control a public debt mountain, but corporate Japan’s concerns were highlighted by a closely watched survey of business sentiment showing bosses are cautious about the future.
In a country beset by years of deflation, critics warn that already thrifty shoppers would snap their wallets shut, and millions of shoppers made a last-minute dash to stores in recent weeks. The last time Japan rolled out a higher sales levy, in 1997, it was followed by years of deflation and tepid growth that defined the country’s protracted slump.
The rise has presented a huge challenge for Prime Minister Shinzo Abe since he swept to power in late 2012 on a ticket to drag the world’s number-three economy out of a cycle of falling prices and tepid growth.
On Tuesday, defending the rise — which could be followed by another, to 10 percent — Abe pointed to spiralling healthcare and social welfare costs, which are straining the public purse in a rapidly ageing society.
The rise “is meant to offset increases in social security costs over the years and to maintain the country’s trust”, he told reporters, adding that the battle to defeat years of growth-sapping deflation would continue.
But a Kyodo news agency poll earlier this year said about three quarters of Japanese were feeling no impact from the premier’s growth efforts, which included an unprecedented monetary easy programme by the Bank of Japan (BoJ) that helped sharply weaken the yen and boost company profits.
Retailers are launching special deals to keep customer traffic steady, such as offering more points on shopping cards or promising a boost to the quality — and in some cases, volume — of their pricier products. “There is a risk that my sales will drop,” said Masayuki Komatsubara, who runs a small Tokyo shop that sells seaweed and other dried food products. “I’m going to try to find cheaper stuff with the same quality...so that my prices don’t rise too much.”
Yesterday, a closely watched BoJ survey showed that business confidence soared to a more than six-year high in the January-March quarter. However, companies were cautious about the future as the survey of more than 10,000 firms pointed to lukewarm investment and slumping sentiment for the April-June quarter.
“Firms are cautious about the future course of the economy as the impact of the tax hike remains uncertain,” said Hideki Matsumura, an analyst at Tokyo’s Japan Research Institute.
While Toyota, Panasonic and other major companies are boosting wages for the first time in years, exports are still struggling and Japanese factories logged a surprising drop in February
output. AFP
