Taxing times for Japan

The consumption tax rise and why this time it’s different

In 1997 the Japanese government engaged in fiscal retrenchment and raised the consumption tax from 3% to 5%. Soon after the policy came into force, there was a recession and a sharp increase in Japan’s government debt-to-GDP ratio. Japan was about to enter a 15-year period of deflation – the timing was terrible. If only the underlying economy had been stronger, it might have been different.

But this time around we believe it is different. There is momentum behind the Japanese economy and there is significant political capital invested in the move by Prime Minister Shinzo Abe and his government. We expect it to work and we expect to see the positive effects of the tax rise in the coming quarters.

Miyuki Kashima, BNY Mellon Japan’s head of Japanese equity investments


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