Friday will mark one month since the consumption tax rate was raised to 10 percent.
Government efforts to reduce the impact of the tax hike, such as applying a reduced tax rate to food and certain beverages and the introduction of a reward points system for cashless payments, appear to be having an effect. Concerns over the effects of the consumption tax hike are no longer evident in the Tokyo stock market, which is sensitive to economic trends.
"In part because of the government's generous measures to address the tax hike, most investors believe the impact on corporate performance will be negligible," said Chihiro Ota, general manager of investment research at SMBC Nikko Securities Inc.
The Nikkei average of 225 stocks has logged highs for the year for seven straight business days, and on Tuesday briefly hit the 23,000 level for the first time in about a year.
V-shaped recovery
Home appliance retailers, which saw a rise in demand for high-priced items such as TVs ahead of the tax hike, have seen a large rebound drop. This is partly because some stores were closed due to Typhoon No. 19. However, the impact of these factors has lessened over time, showing what looks like a "V-shaped recovery."
Nationwide sales of digital home appliances in the second week of October (Oct. 7 to 13) were down 25.7 percent from the same period last year, but sales in the third week (Oct. 14 to 20) were only down 6.5 percent, according to research firm BCN Inc.
"Things might return to where they were by the end of the year," predicted Ichiro Michikoshi, a chief executive analyst at BCN.
In the housing industry, most analysts expect a small rebound drop compared to the previous tax increase in April 2014.
Post-Olympics risk
Regardless of the tax hike, some have pointed out fundamental weaknesses in personal consumption in Japan.
"Consumption appears weak when government policies like the reduced tax rate and reward points system are taken into consideration," said SMBC Nikko Securities senior economist Koya Miyamae.
"The weakness in consumption was there before the tax hike. We need to carefully observe trends from November," said Atsushi Inoue, a senior official of the Japan Chain Stores Association, which counts supermarkets nationwide among its members.
Even if the shock from the tax hike is overcome, there may be the risk of an economic downturn in or after autumn 2020, after some of the government's tax-hike countermeasures expire and the Tokyo Olympics and Paralympics end.
Smooth start for rewards
A senior official of the Economy, Trade and Industry Ministry said the reward points system for cashless purchases that started Oct. 1 has gotten off to a "smooth start."
As of Oct. 24, about 910,000 small and midsize ratailers had applied to participate in the system. This means almost half of the about 2 million businesses nationwide that are eligible for the program have applied.
The number of businesses that had completed the procedures and could actually use the system rose from about 500,000 stores on Oct. 1 to 610,000 stores on Oct. 21.
The reward points system is set to run for nine months until the end of June next year. Some people in the ruling parties have begun to call for an extension. "The duration is short, and the benefits to small and midsize stores are small," a young Liberal Democratic Party member said.
Read more from The Japan News at https://japannews.yomiuri.co.jp/
