Updated: 03/26/2014 00:14 | By Agence France-Presse

Japan shoppers splash out the yen before tax rise

Tokyo resident Reiko Oguma is splashing out the yen in a last-minute buying spree as she and millions of Japanese shoppers brace for the country's first sales tax hike since the late 1990s.

Japan shoppers splash out the yen before tax rise

Customers check Japanese fashion giant Uniqlo's newly design outfits featuring French fashion icon Ines de la Fressange at Uniqlo's flagship shop in Tokyo on March 20, 2014 - by Yoshikazu Tsuno

Oguma, a forty-something housewife, reckoned there was no time to lose so she shelled out the equivalent of $2,000 for a new refrigerator and clothes ahead of the increase on April 1 -- as fears grow that the hike will take a bite out of consumer spending and derail Japan's nascent economic recovery.

"I know that stuff is cheaper than it will be afterwards so I'd rather buy it now," said Oguma, among the thousands shopping in Tokyo's bustling Shinjuku district, adding that she saved the equivalent of around $60. 

Such modest savings and a new levy of 8.0 percent -- up from 5.0 percent -- might not register in places with much higher consumption taxes.

But not so in Japan, where the economy has been long been locked in a deflationary spiral and consumers are used to paying pretty much the same prices year after year for their haircuts, televisions, beer and sushi.

Electric toothbrushes, family-sized fridges and washing machines are selling fast at household and electronics chain Bic Camera, where February sales were up almost 14 percent from a year ago, despite poor winter weather that might have otherwise kept shoppers at home.

"We're seeing rush demand ahead of the tax increase," said a spokesman for the company. 

Some firms are absorbing the higher tax to keep prices steady, fearing a drop in customer traffic.

However, QB House, a 1,000 yen-a-head haircut chain, said prices will go up a full 8.0 percent to 1,080 yen. The company reasoned that it kept its thrifty rates capped despite the last tax rise 17 years ago, when the levy rose to 5.0 percent from 3.0 percent .

"Under the current circumstances, it is hard to keep prices the same," it said.

It's a similar story for the Yoshinoya restaurant chain's beef-on-rice bowls which are set to cost 300 yen, up from 280 yen, owing to the tax rise and rising import costs, which have been pushed up by the weak yen.

- Thrifty consumers - 

Falling or static prices may sound great for household budgets, but Japanese wages have barely moved over the years and the cycle meant shoppers tended to hold off buying in the hope of getting goods cheaper down the road. That, in turn, hurt producers and slowed economic growth.

The tax rise is seen as crucial for bringing down Japan's eye-watering debt. 

But it has created a key challenge for a policy blitz unleashed by Prime Minister Shinzo Abe, aimed at nudging the world's third-largest economy out of deflation.

A key worry is that Japan's last tax rise in 1997 deterred consumers and foreshadowed the drop into a cycle of falling prices -- although other factors, including the Asian financial crisis, also weighed on the economy.

Consumer prices in 2013 logged their first annual rise in five years, while land prices are up in major cities for first time since the global financial crisis in 2008.

Those inflationary signs -- along with higher prices from the tax rise -- are exacerbating fears about future spending, despite recent wage increases by major firms including Toyota and Panasonic.

Spending data "suggest consumers are getting thrifty, and expectations for salary increases were not enough to offset the trend," said Credit Suisse analyst Hiromichi Shirakawa.

Among those tightening their belts is 19-year-old college student Yukako Muraishi.

"From April, I'll be cutting back on spending," she said, after scooping up some expensive new clothes.

Still, not everyone thinks the late nineties slowdown will repeat itself. 

Last week, Japan passed its biggest-ever budget to prop up growth, after the Bank of Japan last year unleashed an unprecedented monetary easing campaign to stir growth.

"Compared with 1997, we now have the central bank's monetary easing and government policies designed to cushion the shock," said Mitsubishi UFJ Morgan Stanley Securities' senior economist Hiroshi Miyazaki.

"So, I don't think the economy will slow down this time around." 

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