In looking at the latest GDP report from Japan, which shows a second quarter of declining output, it is hard to avoid the effect of the sales tax, an unfamiliar 7 percent tax that seems to have sapped consumers’ courage. After the tax was put into place, consumer spending edged up only slightly in nominal terms, which means the amount of stuff people are buying is quite a bit less than before. It’s not a surprise if shoppers feel a new reluctance after the price of essentially everything jumped up. Price-conscious shoppers have to wonder what to buy; income-conscious shoppers wonder what they can afford.
It is important also not to overstate the impact of the sales tax. There were weather disasters during the quarter that gave a reason for caution. Storms temporarily took out transportation and electricity in some places. All in all, the downturn should not be taken as a trend.
It is also possible to look deeper. The reason for the harsh new tax policy is a government debt large enough to destabilize the national economy. Reducing the debt is a valuable course of action even if it is not so easily taken. Behind the government debt one may find a messy network of indirect subsidies that have gone in many directions, most especially in the direction of nuclear power. This created a financial hole that the country has to dig out of, and sooner is better than later.
