Japan weak retail sales bolsters tax hike delay plan

Japanese retail sales fell in April for the second consecutive month, bolstering the argument that a nationwide sales tax increase scheduled for April next year should be delayed.

Japanese retail sales fell 0.8 percent in April from a year earlier, less than a median market forecast for a 1.2 percent annual decline, government data showed on Monday. That marked the fastest decline since March 2015.

Prime Minister Shinzo Abe will delay the tax hike by two and a half years, sources told Reuters, due to worries the move could push down consumer spending even further and possibly hasten a return to deflation.

“Consumer spending is stagnating,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“Wages are rising and people are worried about high food prices. I can understand why the government would want to delay this tax hike.”

Compared to the previous month, retails sales were unchanged in April, a slowdown from March when they rose by 1.5 percent.

Abe told Finance Minister Taro Aso and the secretary general of his ruling Liberal Democratic Party, Sadakazu Tanigaki, on Saturday of his plan to propose delaying the tax hike for a second time, until October 2019, a source told Reuters.

The prime minister, who has promised to announce steps on Tuesday to spur economic growth and promote structural reform, is also expected to order an extra budget to fund stimulus measures, just two months into the fiscal year and on the heels of a supplementary budget to pay for recovery from recent earthquakes in southern Japan.

The plan to raise the sales tax to 10 percent from 8 percent has already been delayed once after an increase to 8 percent from 5 percent in April 2014 hit consumption and knocked the economy into recession.

Abe swept into office three years ago with bold plans to end decades of deflation and bring about sustainable growth. Unprecedented monetary policy in tandem with fiscal stimulus met with some initial success, but consumer spending has struggled due to weak gains in wages.

Source: Reuters