Is Japan recovering from the VAT rate hike of April the 1st? Clearly it doesn’t

Is Japan recovering from the VAT rate hike of Avril the 1st? Not really when we look at July numbers on retail sales. (see here for a detailed analysis of Q2 GDP drop). Retail sales are down again in July and the current sales profile is clearly weaker than in 1997 during the previous VAT rate hike: sales were up in July 1997, down in 2014.
In 1997 the rate hike led a to a long recession. With a weaker dynamics the probability of a long recession is clearly above 50%. The drop in households purchasing power continues and in the absence of structural reforms there are no reasons for a rapid upturn. Continue reading

Japan – The negative impact of the higher VAT rate on sales can still be seen in May

The increase of the VAT rate on April the 1st was an important event in Japan but also for the world economy. The success or failure of the Abenomics was partly dependent on the impact of this increase on Japanese consumers’ behavior. We now have figures from department stores’ sales in May.
One month ago I did a first evaluation of the higher VAT rate on sales (here in French for department stores and here in English for retail sales). This post is an update.
In April department stores’ sales dropped dramatically after the VAT rate hike. March figures were strong in anticipation of this increase.
This dynamics was the same than in 1997 during the previous VAT increase.
Is there a difference in May? Continue reading