Earlier this week it was reported that a large Japanese department store saw a 25% plunge in sales in the first week of April.
The ostensible reason: A big jump in the consumption tax from 5% to 8%, which may have caused consumers to front-run the tax, and which will likely contribute to a drag on consumption.
And Japan has a bad history with this.
As ING notes in its latest global macro outlook, the same thing happened in 1997. Consumers front-ran the tax hike and then sales plummeted.
But what’s really scary is what ING says were the ramifications of this tax hike:
…the Japanese government has pushed through the consumption tax hike, which raises the tax rate on purchased goods and services from 5% to 8% — still dramatically lower than equivalent taxes in other developed countries. The last time the Japanese government did this was in 1997, and the resulting economic slowdown not only sent Japan into a recession that it did not really emerge from for three years, but helped spark a crisis in the entire Asia region.
Not what you want to see happening in the region as China slows as well.