While the sales tax hike to 8 percent from 5 percent on April 1 is
necessary to bolster the country's finances, many fear that it could
wallop consumer sentiment and derail the success Prime Minister
Shinzo Abe has had with weakening the yen to help exporters and with
boosting stocks and corporate profits.
Consumers typically spend big in the months ahead of such tax hikes
and tighten their purse strings for some time afterwards. A sales
tax increase for Japan in 1997 has been blamed for playing a part in
depressing economic growth and creating the deflationary mindset
that has long weighed on the country.
But the Reuters Corporate survey, conducted March 3-14, showed 59
percent of respondents expect revenue to return to year-earlier
levels within nine months of the tax hike, up from 47 percent who
responded to the same question in December.
Some 40 percent expect a bounce back within six months, compared to
29 percent in December.
Reasons cited for the upbeat outlook include expectations of
improvements in bonus payments, a surge in public works spending and
other building efforts related to reconstruction after the Fukushima
disaster and the 2020 Tokyo Olympics, as well as expectations of
more government stimulus.
"Passing along the costs of the sales tax hike is going smoothly
overall," wrote an executive at a machinery maker, one of 253
companies that responded to the question on the impact of the tax
hike. "I don't think it will take much time for sales to recover."
Executives respond anonymously to the Reuters Corporate Survey of
400 firms, which is split evenly between manufacturers and
Hideki Matsumura, a senior economist at the Japan Research Institute
who reviewed the results, also said spending ahead of the sales tax
hike did not seem as big as previous tax hikes. He noted that many
consumers had already bought big ticket items such as TVs and cars
in recent years due to government subsidies designed to boost the
economy and promote eco-friendly goods.
The survey, conducted for Reuters by Nikkei Research, also showed
that more than half the companies expect higher profits in the next
business year from April, though most of those respondents saw the
rise as slight. One-third said they expect similar results to this
year's strong showing.
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Profits, especially for Japan's industrial core of manufacturing
exporters, have soared on the back of Abe's bold monetary and fiscal
policies. Nomura analysts have predicted that the 295 Japanese firms
in the Russell/Nomura Large Cap Index will see annual operating
profit rise an average 35.8 percent this business year.
But while the outlook for a tax-hike rebound and corporate profits
was relatively upbeat, the survey also underscored that ensuring a
self-sustaining recovery — for which boosts to base pay and domestic
capital spending are seen as key — will remain a significant
challenge for "Abenomics".
Weaker consumer spending, business investment and exports have
caused to Japan's economic growth to slow to around 1 percent in the
second half of 2013, sharply down from an annualized growth rate of
above 4 percent in the first half.
Even with higher profits, major manufacturers said in the survey
that their priorities in putting their cash to use lie with research
and development, overseas expansion and maintaining their reserves.
A lack of interest in expanding in their home market or boosting
wages was particularly worrying, said Matsumura at Japan Research
"Corporate profits have gotten better, but the Japanese economy will
not if this is the case," he said.
The survey also showed that while a quarter of companies are worried
about Abe's nationalistic stance that has angered Japan's Asian
neighbors, just under half said there had been no impact on their
overseas business plans. About one third said they were unsure about
Abe visited a shrine honoring Japan's war dead in December,
infuriating China and South Korea, which said the shrine glorifies
Japan's wartime and colonial brutality.
(Editing by William Mallard and Edwina Gibbs)
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