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Japan diaper shortage shows how China demand can relieve tax pain

Published on Apr 1, 2014 5:10 AM

(REUTERS) - For evidence that Japan's economy could avoid a steep decline after a sales tax increase takes effect on Tuesday, consider diaper sales.

Retailers across Japan have reported shortages of Kao Corp's 'Merries' brand diapers in recent months, with many stores sold out even after imposing rations.

At midnight, Japan's sales tax rose to 8 per cent from 5 per cent. A crush of demand ahead of the first sales tax hike in 17 years has been credited with lifting sales of everything from condominiums to luxury cars - and raised fears of a sharp downturn in spending over coming months.

That was certainly the experience of 1997, when the sales tax rose to 5 per cent from 3 per cent - and spending promptly fell off a cliff.

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