Japan committed to consumption tax hike

Letting the air out of Japan’s debt-to-GDP bubble

Japan’s Finance Minister has reiterated the Japanese government’s commitment to increase the consumption tax rate by two per cent to 10 per cent this October. In principle this bump would help relieve Japan’s enormous government debt-to-GDP level, as well as help fund Japan’s social safety net, which is under significant strain from a declining workforce and aging population.

Third time’s the charm?

Each time Japan has increased its consumption tax rate since its introduction in 1989, it has been preceded by spending and then followed by recession. The increase from three per cent to five per cent coincided with the 1997 Asian financial crisis and contributed to extending Japan’s economic stagnation in the 1990s. The last time Japan raised its consumption tax – to eight per cent in April of 2014 – the Japanese economy took a significant hit for more than a year. The planned hike to 10 per cent has been delayed twice since 2015. Will it get through the third time round?

Japan’s role in Canada’s trade diversification strategy . . .

Japan is Canada’s fourth largest trade partner. As a fellow member in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Japan is also central to Ottawa’s trade diversification strategy. Canadian companies already in the Japanese market or those that are considering getting in should pay close attention to developments in Japan’s domestic economy, including fluctuations in Japanese consumer spending tied to these ongoing tax hikes.