Brilliance out of Japan as we see the country’s standard “sales tax” raised from 5% to a staggering 8% here for the beginning of April.
This is very likely going to cause a considerable downturn in consumer spending for the coming quarter as the BOJ finds itself “ounce again” in a very precarious position.
In April 1997, when the government last raised the sales tax, to 5% from 3%, consumption took a dive and along with the effects of the Asian financial crisis, pushed Japan into deflation and a recession that lasted more than 18 months.
Now after 16 months of printing money like there’s no tomorrow, an increase in sales tax hardly sounds like part of a “cohesive plan” but this is not at all uncommon in Japanese central planning.
It’s one step forward ( if you consider rampant currency devaluation a step forward ) and two steps back as consumers tighten their belts and plan to cut back on spending.
We’ll keep a watchful eye on the Nikkei as always, along with those pesky JPY pairs that still refuse to budge.