Japan’s April Sales Tax Hike

28th May 2014

Japan Retail Sales – 29/05/14

There is a host of market speculators betting that Japan’s April Sales Tax Hike will push the economy back into decline, extinguishing domestic demand and reversing all recent economic headway, in a rehash of the 1997 experience.

Futures positioning data suggest the market is sitting on substantial yen short positions in the belief that a sharp reversal in domestic demand will force the Bank of Japan to ramp up its quantitative easing policy. April Retail Sales will be the first indication of how these short yen bets have fared as the first broad measure of domestic demand in the aftermath of a 3 per cent sales tax hike.

A strong Japanese Retail Sales number could see a substantial short squeeze and a shift higher in the yen. Preliminary indicators are, as expected, showing a fall off in consumption, but only from the elevated sales level seen in March when consumers front-ran the tax increase. A slump in vehicle, department store and convenience store sales were surprisingly light, not entirely reversing March’s sharp rise.

Firming domestic demand is evident beneath the skewed data and a robust 3.4 per cent annual import growth in April, following the 18.1 per cent spike in March, suggests an end to the anaemic Japanese consumer that characterised the last decade.

Speculators will be feeling tight around the collar ahead of the Retail Sales number and the Bank of Japan’s assertion that private demand remains on a firm trend suggests further easing isn’t looking so inevitable.