Japan’s April Consumption Tax rise drives up inflation

Tue 29th Apr 2014

Japanese inflation has started to rise following the increase in Japanese Consumption Tax from 5% to 8% on 1 April 2014.

Tokyo inflation has already risen by 2.7% since last year, a big jump for a country accustomed to two decades of zero or negative inflation. It is anticipated that this sharp increase is being seen across the rest of the country as retailers have tried to push the tax rise onto consumers.

The tax rise is seen as vital to help pay for the rising welfare costs of an aging population. There are plans for a second Consumption Tax rise to 10% in October 2015.

In addition to funding increased spending, it is hoped that the rise in the indirect tax will also help subsidise a cut to the Japanese Corporate Income Tax which is the second highest amongst the leading economies. Japan is anxious to retain and attract job-creating multinationals, and so wishes to shift the tax burden onto the consumer – although the political risks are high as the last rise in Japanese Consumption Tax in 1997 brought down the then government.