Japan’s retail sales in March accelerated the most in 17 years buoyed by a rush by consumers to stock up goods before the April 1 sales tax took effect.
Retail sales rose 11 percent year-on-year, matching analysts’ expectations, as consumers rushed to buy clothes, toiletries, electronics and other household goods to postpone paying more. The last time the sales grew the most was in 1997 when the last sales tax hike was implemented.
The central bank hiked the sales tax from 5 percent to 8 percent on April 1st. The last time the tax was hiked was coincidentally in April 1997, triggering 12.4 percent growth in sales in March and a decline to 3.8 percent that April. The measure was blamed for the contraction that accompanied it, though some economists blame the Asian financial crisis for the recession.
The figures indicate that sales in April may plummet, though they will still match Tokyo’s expectations. Most analysts are also optimistic that sales will rebound next month, and hence economic growth is still on the right track.
“I don’t think there is too much to worry about, because things seem to be moving as the Bank of Japan expected,” Shuji Tonouchi, a senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, told Reuters.”Summer bonus payments are likely to increase, which should support a gradual rebound in consumer spending from May.”
The government hiked the sales tax to raise additional funds to finance surging welfare expenses. However, the measure has fuelled volatility in the economy, with some analysts worried that it may trigger contraction if the higher prices turn consumers away. This could spell doom to Prime Minister Shinzo Abe’s expansionary fiscal and monetary program meant to combat persistent deflation and sluggish economic growth.
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