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Japan’s retail sales slump the most since 2015

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TOKYO: Japan’s retail sales tumbled at their fastest pace in more than 4-1/2 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 and as other factors drag on the consumer sector.


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, with department stores hit particularly hard. The drop was the biggest since a 9.7 per cent fall in March 2015 and worse than a 4.4 per cent decline predicted by economists in a Reuters poll.


“Regardless of today’s outcome, consumption has been of a weak tone, and consumer sentiment is getting worse,” said Taro Saito, executive research fellow at NLI Research Institute.


“Incomes haven’t been rising originally, so consumption hasn’t been growing since before the sales tax hike.”


The slump was also sharper than the declines reported after the previous two sales tax hikes, in 1997 and 2014, suggesting other factors are dragging on consumption.


“Retail sales fell more sharply in October than after previous sales tax hikes,” said Tom Learmouth, Japan economist at Capital Economics.


“The fall in sales was slightly larger than the 13.7 per cent m/m plunge which followed both the 1997 and 2014 sales tax hikes,” he wrote in a note. 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 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. The 2014 previous tax hike to 8 per cent from 5 per cent hit the broader economy hard as households tightened their purse strings after front-loading purchases before the hike. — Reuters


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