Japan Press Weekly

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2019 October 2 - 8 [ECONOMY]

BOJ economic survey verifies how irrational consumption tax hike to 10% actually is

Akahata editorial (excerpts)

The Bank of Japan on October 1 released the results of the Short-Term Economic Survey of Enterprises in Japan (Tankan) which was conducted in September. The Diffusion Index (DI), which measures companies’ confidence in current business conditions, has deteriorated among large-scale manufacturers for three fiscal quarters in a row. This highlighted anew the fact that the nation’s economy is slowing down.

In the September “Tankan” survey, the DI for major manufacturers stood at 5 points, down 2 points from the June survey, which is the third consecutive decrease. Each of the DIs for medium-sized manufacturers and small-sized manufacturers went down by 3 points. The DI for large-scale non-manufacturers went down by 2 points, the first negative growth in two quarters.

Prime Minister Abe Shinzo has insisted that under his economic policy, Japan is now experiencing the longest economic expansion since the end of the war. However, the latest “Tankan” survey results verified that Japan’s economy has been shrinking since the end of 2018.

More and more companies hold a pessimistic view regarding their business situation. This is not only because wage growth is sluggish and consumer spending is stagnant, but also because Japan’s exports have been adversely affected by the ongoing U.S.-China trade war. This was reflected in surveyed companies’ forecasts of business conditions for the next quarter. According to the forecast in the September “Tankan” survey, the DIs for large-sized manufacturers and medium-sized manufacturers are expected to record a 3-point decrease in the December survey and the DI for small manufacturers a 5-point decrease.

Non-manufacturers are even more pessimistic due to October’s consumption tax hike to 10%. Among them, the forecasted DI for large enterprises is expected to mark a 6-point decrease in the December survey and medium-sized companies and small-sized companies a 9-point decrease. This is most likely because the tax hike will in particular adversely affect the hotel and restaurant industries.

In the first place, the consumption tax with its regressive nature imposes on lower income persons a relatively heavier tax burden than on the rich. To raise the rate of this tax will inevitably discourage people from spending money. Since the consumption tax was introduced at the rate of 3% in 1989, the rate has been increased to 5% and to 8%. Japan has yet to fully recover from the damage caused by the previous tax rate hike to 8% by the Abe government five and a half years ago. The worsening of the “Tankan” survey results indicates how outrageous it is for the Abe government to raise the tax rate to 10%.