Tax increase causes retail sales decline in Japan

Published: June 2nd, 2014

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Retail sales in Japan have fallen by 4.4% during April, compared with April last year.

This has been attributed to a rise in the sales tax rate, from 5% to 8%. This is the first increase in 17 years. Analysts believe that the drop in sales is also due to people buying ahead of the increase date. This was evident in the March sales which grow by 11 % – the highest since March 1997, BBC says.

The sales tax rise is expected to aid the country in achieving its inflation target of 2%. Japan has been struggling with deflation for the past 20 years. This has affected domestic consumption, as businesses and consumers delay purchases in the hope of obtaining a better deal later.

Policymakers are working hard on ending this cycle in a bid to revive economic growth. Some of the measures taken have had positive effects, and consumer prices have increased in Japan. The country hopes that with rising prices, businesses and consumers will be forced into spending money and not holding back on purchases.

There are concerns that the tax increase may prompt people to stop buying which will hurt domestic demand. Analysts are hoping that this is a temporary sales setback.

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