Abe Approves Sales Tax Increase to 8% in Japan

Hiruki Nakamura
01 Oct, 2013
New York City

Prime Minister Shinzo Abe approved the increase of sales tax to 8% from 5% and proposed $51 billion stimulus plan that includes tax breaks for capital spending. Sales tax increase is the first since 1997. The much awaited tax increase is expected to dampen consumer spending.

[R]5:00 PM Tokyo – Prime Minister Shinzo Abe approved the increase of sales tax to 8% from 5% and proposed $51 billion stimulus plan that includes tax breaks for capital spending. The much awaited tax increase is expected to dampen consumer spending.[/R]

Japanese markets rebounded this morning after a sharp fall ahead of policy announcement from prime minister later in the evening.

Nikkei 225 Stock Average closed up 0.2% or 28.9 to 14,485 after rising as much as 1.2% in the day. The broader Topix index declined 0.1%.

The yen closed at 97.76 against one dollar after the release of large business sentiment survey.

The Bank of Japan released its quarterly Tankan index of large manufacturing companies’ sentiment increased to 12 in September from 4 in June.

Prime Minister Shinzo Abe approved the sales tax increase and proposed a 5 trillion yen stimulus plan that included public works spending and corporate tax breaks for capikyo tal investments.

The plan to increase the sales tax increase to 8% from 5% was passed by the previous government and that needed prime minister’s approval. The tax is slated to increase to 10% in October 2013.

Japan is battling largest deficit as a percentage of GDP and struggling to overcome deflation that has snared the nation for two decades. Japan has 1,008 trillion yen at the end of June, more than the debt of France, U.K. and Germany combined.

Prime Minister is working on three fronts to revive the economic activities by increasing government spending, proposing structural reforms and providing additional financial liquidity through the central bank.

Stocks in Review

Toyota Motor Corp closed unchanged at 6,270 yen and Nissan Motor increased 8 yen to 992 yen. Honda Motor Co Ltd added 35 yen to 3,770 yen.

Softbank Corp increased 2.5% or 170 yen to 6,960 yen and Fast Retailing Co Ltd gained 0.7% or 250 yen to 37,100 yen.

Nikon Corp decreased 2 yen to 1,711 yen, Canon Inc declined 15 yen to 3,115 yen Tokyo Electron Limited fell 50 yen to 5,210 yen.

Sony Corp declined 13 yen to 2,085 yen and Toshiba Corp fell 9 yen to 431 yen.