Japan slowing growth threatens Consumption Tax rises

Mon 12th Aug 2013

Disappointing Quarter 2 GDP growth figures today put into question the prospect of doubling Japanese Consumption Tax by 2015.

The plan to raise Japan’s Vat / Consumption Tax from 5% to 10% (8% in April 2014; 10% in 2015%) was first proposed in 2012. The risks and concerns about the impact on growth led to the then government falling.

The current Japanese government, under premier Abe, has brought in a range of lose monetary policies to finally raise Japan out of its 10+ years malaise. The consumption tax rise is seen as a key part of the economic reforms, crucial to help funding the rising social security bill from an ageing population.

The government had crucially set Q2 growth numbers as a test for the introduction of the tax rise. Today’s numbers at 0.6% equates to an annualised rate of 2.6%. This compares to a market expectation of 3.6%, and 4.1% for the first quarter of 2013.

A final decision on the rise is expected this month.