The nation’s economy is less likely to suffer a painful whiplash from a sales tax increase. The tax increase is scheduled for October. Early sales figures for autos and apartments suggest low economic growth. Experts predict Japan sales tax hike decreases rush demand on cars, apartments, or other products.
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The Demand for cars and houses hasn’t significantly increased. During the previous hike in 2014, the economy contracted after consumer spending surged ahead of the increase. Yet, the spending plunged afterward.
Avoiding an economic shock from the tax increase is a priority for Prime Minister Shinzo Abe. The prime minister tries to keep a vulnerable economy expanding. At the same time, the US-China trade war worsens the situation. Consequently, there is a slump in global tech demand and deteriorating sentiment. To that end, the government has announced a range of measures to offset the economic effects of the hike.
Vehicle sales fell 0.9 percent in June from a year earlier. That happened four months ahead of the tax hike, according to a report. That compares with seven straight double-digit jumps in the months before the 2014 increase.
The number of condominiums sold in Tokyo also fell 14 percent in May from a year ago. Thus, there is a fourth consecutive monthly drop, according to the same report. There’s little sign of rush demand this time. The reason is partly because of government measures.
Cars and houses are the main big triggers that are likely to attract early rush demand. The rush demand is essential in the months before a sales tax hike.
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The Solution
Consumption holds the key to Japan’s economy. While Abe’s administration underestimated the economic impact of the last tax increase, he has vowed to press ahead with the tax hike this time. That is after two postponements, as he tries to ease the nation’s ballooning debt burden. He also tried to decelerate Japan sales tax hike.
The government’s countermeasures include tax breaks on car purchases and homes. Besides, rebates for those making cashless payments to help prop up spending. The latest increase is also smaller than the 3 percentage point hike in 2014. It won’t apply to essential items such as food.
