Japanese Retail Sales Drop on Tax Hike

Japan’s retail sales dropped in April at a record rate following the government’s push forward with its first consumption tax increase in over 17 years to repair its troubled finances.

Preliminary figures that were released Thursday by the ministry of industry, trade and economy showed sales by Japanese retailers during April fell by 13.7% after the government hiked the tax to 8% from 5% April 1.

That drop in April was the largest since an 8.4% fall following the earthquake and tsunami in March of 2011.

April’s drop followed March’s 6.4% jump, also a new record, as shoppers stocked up on purchases prior to the tax increase on April 1.

Average sales during March and April were up nonetheless by 0.9% from average of the same period one year ago.

Analysts said that new economic data for the quarter July through September would be a better guide for Japan’s government as it makes decision to press forward with another increase in consumption tax to a high of 10% that would go into effect in October of 2015.

The decision for that hike or not, should be taken sometime this fall. In the few hours following the release of the sales data, the yen gained against the U.S. dollar, which suggested that traders were pushing against further easing the Bank of Japan, while stocks remained flat.

The squeeze fiscally comes amidst an effort by Shinzo Abe the Prime Minister to defeat deflation from the third largest world economy via aggressive monetary and fiscal stimulus.

Abe took charge near the end of 2012 and Japan has had six straight quarters of growth although it has been nominal, something it did not manage for the previous 20 years.

At the same time, a big rise in profits at businesses caused through a weaker yen helped tax receipts, causing the markets to have a more sanguine view of the huge government debt burden Japan has that is equivalent to over twice the total gross domestic product.

Institutions like the OECD and the IMF have warned that the tax increase of two-stages is only one of many fiscal measures that Japan must take to reach its target of ending primary deficit, which is the gap between its spending and revenues by 2020.

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