The Japanese economy has now contracted for two consecutive quarters and that is the classic definition of a recession. This should not come as a shock, but there is still apparent consternation in the planning rooms.
For many observers this slide seemed inevitable the moment the decision was made to push the national sales tax from 5% to 8%. The commentary at the time of the tax hike was that this looked like trying to floor the accelerator while jamming one’s foot on the brake. At the same time that people were being asked to spend Japan out of the doldrums as part of “Abenomics,” they were being smacked with higher sales taxes. One has to ask what the government thought would happen.
There was a rush to buy things prior to the arrival of the tax at the start of the year and, after the sales tax hike went into effect, that spending stopped almost entirely. The impact was worsened by the promise of another tax hike later in the year.
The tax was expected to be a minor thing. What policy makers seem to consistently forget is the impact on the psychology of the consumer. They look at an item and see the price and the retailer then shows them the price with tax, which adds quite a bit. The extra fee reduces desire, especially if the tax is unrelated to the quality of the product. Retailers have been jolted by the tax and had been pleading with officials not to add the next tax, to no avail.
- Armada Corporate Intelligence