Tax hike takes toll on Japan retailers' mood, but outlook br

Bareksa.com - Japan's service-sector sentiment worsened in April at the fastest pace since the devastating 2011 earthquake and tsunami, a government survey showed, a sign the sales tax hike which took effect last month is cooling consumer spending.

But an index measuring the mood on the outlook staged the biggest rebound on record, suggesting that many firms reliant on consumer spending expect the pain from the tax hike on the economy to be temporary.

"Conditions are better than when Japan previously raised the sales tax (in 1997), thanks to support from rising wages and stock prices," said a department store in western Japan that participated in the survey. "The impact of the tax hike appears to be small."

The survey of workers such as taxi drivers, hotel workers and restaurant staff - called "economy watchers" for their proximity to consumer and retail trends - showed their confidence about current economic conditions stood at 41.6 in April, down 16.3 points from March and the first reading below 50 in 15 months.

A reading of 50 in the Japanese confidence survey means the mood is neither optimistic nor pessimistic.

The April decline was the index's biggest since March 2011, when a calamitous earthquake and tsunami hit household spending and factory output, nudging Japan's economy into recession.

SOME WEAKNESS SEEN

"The economy continues to recover moderately as a trend, but some weakness is seen recently due to a downturn in demand after the tax hike," the government said, revising down its assessment on service-sector sentiment.

Retailers, however, are less pessimistic about the outlook.

In April, the sentiment index on the outlook jumped from the previous month by 15.6 points to 50.3. That was the biggest rise since comparable data became available in 2001, the survey showed.

It was the first improvement in the index in five months, reflecting hopes the damage on household spending and sentiment from the tax hike will gradually fade, the government said.

The April 1 increase in the sales tax - to 8 percent from 5 percent - has sparked worries that consumers will tighten their wallets, threatening the economic recovery Prime Minister Shinzo Abe has engineered with aggressive monetary and fiscal stimulus.

But anecdotal evidence has shown the slump in spending in April has been moderate, underscoring the Bank of Japan's view that the economy can withstand the pain from the tax hike without additional monetary stimulus.

Japanese household spending soared at the fastest annual pace in four decades in March as consumers rushed to beat the sales tax hike, data released earlier this month showed.

Analysts anticipate a fall in household spending following the March surge, though policymakers hope expectations of improving job markets and higher wages will take the sting out of the tax hike. (Source : Reuters)