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 Retailers across Japan have reported shortages of Kao Corp's
<4452.T> 'Merries' brand diapers in recent months, with many stores
sold out even after imposing rations.
At midnight, Japan's sales tax rose to 8 percent from 5 percent. A
crush of demand ahead of the first sales tax hike in 17 years has
been credited with lifting sales of everything from condominiums to
luxury cars — and raised fears of a sharp downturn in spending over
coming months.
That was certainly the experience of 1997, when the sales tax rose
to 5 percent from 3 percent — and spending promptly fell off a
cliff.
Economists trying to assess the payback have focused on soft goods — items such as cigarettes, office supplies and diapers — where
sales surged in the final weeks of March. Sales of consumables
account for about a quarter of private consumption.
The thinking goes that the bigger the rush ahead of the tax hike,
the bigger the drop in spending will be in this quarter, and the
bigger the risk that the economy will disappoint already modest
expectations of less than 1 percent growth for 2014.
"Real household income will be squeezed after April by a greater
degree than last time because of the bigger rise in the sales tax
rate," said Yasuo Yamamoto, senior economist at Mizuho Research
Institute.
"As such, there's a risk of the pullback turning out deeper this
time."
A deep slump could increase the pressure on the Bank of Japan to
expand an already massive program of monetary stimulus by mid-year.
CHINESE DEMAND
But behind the diaper sales surge, many retailers say, is a factor
that did not figure in 1997: increasingly affluent Chinese
consumers.
Demand from a grey market of brokers who buy Japanese-made diapers
and send them to China was behind the disappearance of Merries and
other diapers from store shelves in recent weeks, according to
brokers and store managers.
Some stores, such as the Papasu drug store chain, found it almost
impossible to keep the Merries brand on shelves.
"We have Chinese customers buying packages of Merries, and even when
we set a one-package-per-person limit, they come back again to buy
more," Koji Toyama, a Papasu employee, said last week.
The reputation of Japanese-made products means that some Chinese
consumers are willing to pay a premium for them, even preferring
them over Kao's Chinese-made Merries.
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And that changing nature of consumption patterns, many economists
say, means the pain in Japan will be more limited than 1997, when
the sales tax hike coincided with the start of the Asian financial
crisis and a recession.
Kenji Yumoto, vice chairman of the Japan Research Institute, said he
was cautiously optimistic that the drop-off in consumer demand will
not be as extreme as it was the last time. While auto sales rose by
proportionally more than they did in 1997, other categories had not
seen such an outsized run-up, he said.
"I expect that the pullback in demand will be smaller than it was in
1997," he said.
For appliances and home electronics, for example, official data
shows little change in sales over the past two years — in stark
contrast to 1997.
Then, ahead of the tax increase, sales rose steadily for four
quarters before a spike in the final three months when they were 40
percent higher than two years earlier — and immediately crashed
back to below their 1995 levels.
As well, spending on services, which accounts for around 60 percent
of private consumption, is seen as less vulnerable to boom-and-bust
swings.
But while world's third-largest economy may be able to weather the
sales tax rise, Japan's diaper brokers see tough times ahead.
An Osaka-based diaper broker said the sales tax, along with rising
costs for gasoline, shipping and the shoppers he hired in Japan were
all eroding his margins. Made-in-Japan Merries can fetch the
equivalent of as much as $27 in China, compared with about $13 in
Japan.
"This business used to be profitable," he said.
(Additional reporting by Tetsushi Kajimoto and Leng Cheng;
editing
by John Mair)
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