TOKYO • Japan's retail sales tumbled at their fastest pace in more than 41/2 years last month as a sales tax hike prompted consumers to cut spending, raising a red flag over the strength of domestic demand.
The government increased the nationwide sales tax rate 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 and as other factors drag on the consumer sector.
October retail sales fell 7.1 per cent from a year earlier, pulled down by weak demand for big-ticket items such as cars as well as clothing, Trade Ministry data showed yesterday, with department stores hit particularly hard.
"Regardless of today's outcome, consumption has been of a weak tone, and consumer sentiment is getting worse," said NLI Research Institute executive research fellow Taro Saito. "Incomes haven't been rising originally, so consumption hasn't been growing since before the sales tax hike."
The sales slump was sharper than the declines reported after the previous two sales tax hikes, in 1997 and 2014, suggesting other factors are dragging on consumption. Sales fell 4.3 per cent in April 2014, the month of the previous tax hike.
Seasonally adjusted retail sales dropped 14.4 per cent month on month in October, the data showed. The negative reading comes after separate data showed Japan's economy nearly stalled in the third quarter, while exports shrank last month at their fastest pace in three years.
Analysts said October retail sales were also hit by poor weather, after a huge typhoon ripped through central and eastern Japan. Others also noted more structural pressures faced by retailers even before the sales tax hike, such as the prolonged decline in real wages.
The government has introduced a rebate programme for cashless transactions designed to both soften the tax hike blow for retailers and encourage Japanese consumers to use electronic payments instead of cash.
Some retailers are simply reducing prices to lure customers.
"This could spark stiff price competition and induce deflation. Small firms that lack competitiveness will be forced out of business," Japan Supermarket Association head Yukio Kawano told Reuters.
Singapore's goods and services tax rate is slated to go up from 7 per cent to 9 per cent some time between 2021 and 2025.
REUTERS
