Japan retail sales post worst fall in 4 years as sales tax hike hits demand

Retail sales in Japan fell 7.1 per cent in October from a year earlier. PHOTO: AFP

TOKYO (REUTERS) - Japan's retail sales tumbled at their fastest pace in more than 4½ years in October as a sales tax hike prompted consumers to cut spending, raising a red flag over the strength of domestic demand.

The Japanese government increased the nationwide sales tax to 10 per cent from 8 per cent on Oct 1, in a bid to fix the industrial world's heaviest public debt burden, which is more than twice the size of the country's gross domestic product.

However, some analysts have warned the tax hike, previously postponed twice, could leave the economy without a growth driver amid a slump in exports and production.

Retail sales fell 7.1 per cent in October from a year earlier, pulled down by weak demand for big ticket items such as cars and household appliances as well as clothing, trade ministry data showed on Thursday. The data showed department store sales were hit particularly hard.

The drop marked the biggest since a 9.7 per cent fall in March 2015 and was worse than a 4.4 per cent decline predicted by economists in a Reuters poll.

The decline indicated retail sales were falling at a fast pace after the sales tax hike kicked in last month. At the time of the previous tax hike in April 2014, retail sales fell 4.3 per cent in that month.

Seasonally adjusted retail sales dropped 14.4 per cent month-on-month in October, the data showed.

The negative reading comes after separate data this month showed Japan's economy nearly stalled in the third quarter, while exports in October shrank at their fastest pace in three years.

The gloomy conditions have led to calls for the government to compile a big spending package to keep the country's fragile economic recovery on track.

Some analysts have said retail sales in October have been particularly weak due to poor weather, after a huge typhoon tore through central and eastern Japan, exacerbating the negative effect from the sales tax hike.

The previous tax hike to 8 per cent from 5 per cent in 2014 hit the broader economy hard as households tightened their purse strings after front-loading purchases before the hike.

But policymakers have said that the tax hike last month has not triggered such a big swing in demand, given the smaller extent of the hike and various government measures to help offset the hit to spending.

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