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Japanese retail sales dropped 14.4% MoM in October as sales tax increase goes live
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Reading was also impacted by the typhoon and drop in South Korean visitors
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Sales tax increase in 2014 was followed by collapse in consumer spending
Retail sales data from Japan was released over the night. Figures for October were the first ones to be affected by an increase in sales tax. Sales tax rate increased from 8% to 10%. Economists surveyed by Bloomberg expected a drop of 10.4% MoM (-3.8% YoY) in October but the actual data showed a massive 14.4% MoM decline (-7.1% YoY). The biggest declines were spotted in motor vehicles and household machines as consumers hastened purchases to September. Five years ago, in April 2014, Japan delivered a similar sales tax hike but, back then, the drop accounted to 13.7% MoM (-4.3% YoY). However, a point to note is that sales tax increase was not the only factor affecting Japanese retail sales in the previous month. Japan was hit by a typhoon in October and it is estimated that it accounted for a decline of over 3 percentage points. Last but not least, the ongoing spat with South Korea could take the toll on the reading as well as the number of South Korean visitors declined. The question remains how Japanese administration will respond to this development as sales tax increase in 2014 was followed by a collapse in consumer spending that turned out to be a major drag on economic growth.
Sales tax increase that took effect in October was followed by a bigger plunge in retail sales than similar tax hike in April 2014 (blue line on the chart). However, this time the reading was also affected by the typhoon and the aftermath of the Japan-South Korea spat. Source: Bloomberg
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