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What Happened The Last Time Japan Raised Its Consumption Tax?

Tyler Durden's picture




 

Japanese stocks have been bouncing back higher in the last few days as considerably worse data than expected combined with the looming consumption tax hike (which the government has to do to show the market that is, at a minimum, somewhat fiscally responsible) are driving both stocks and JPY to discount a near future dominated by an even bigger stimulus by the BoJ. However, casting a big shadow over all this is what happened the last time Japan raised its consumption tax...

 

So are we going to get the bounce of euphoria followed by the 40% plunge of reality?

What happened in 1997?
That was the last time Japan raised the consumption tax and it wasn't long afterwards that the economy slipped into recession.

Of course, the asset-managers are quick to deny any and every possible analog...

"I don't think 1997 is a good analogue for what is happening in Japan now. There are three key reasons for that," said Alexander Treves, head of equities for Japan at Fidelity Worldwide Investment.

 

"The first is that back in 1997, the financial system was in significantly worse shape.
The second is that in 1997 the consumption tax hike took place against a backdrop of the Asian financial crisis and...
the third thing is that the stock market was much more expensive back then,"

So, let's get this straight... he thinks Japanese banks are in a better financial position currently (totally overbloated with JGBs?), there is no backdrop of an asian financial crisis (umm, look east my friend, China is dead-center on this), and the stock market is cheaper now? (on a fwd P/E maybe but we all know how fast those 'expectations' collapse).
 

 

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Thu, 04/03/2014 - 20:45 | 4623453 Shizzmoney
Shizzmoney's picture

Raising taxes while wages decline or stagnate is never a good idea, but it's not like I know 4th grade math or anything.

Thu, 04/03/2014 - 22:07 | 4623667 rubiconsolutions
rubiconsolutions's picture

Beware America. This is what will happen if the people pushing a so called Fair Tax here get their way. It's a consumption tax. How about if we try something novel? Like reducing the tax burden, repealing the 16th amendment and not replacing it with some convoluted consumption tax. Yeah, I know..."But who will build the roads!?" says the man running and screaming with his hair on fire.

Thu, 04/03/2014 - 20:58 | 4623497 QQQBall
QQQBall's picture

Now all they need to do is raise the minimum wage. LOL

Thu, 04/03/2014 - 21:39 | 4623601 naughtius maximus
naughtius maximus's picture

This is definately bullish

Thu, 04/03/2014 - 21:42 | 4623612 daveO
daveO's picture

tax hikes are pretty futile at this stage. They should be demanding the first born of every household!

Thu, 04/03/2014 - 21:45 | 4623621 naughtius maximus
naughtius maximus's picture

They already got that with bonds.

Thu, 04/03/2014 - 23:03 | 4623776 disabledvet
disabledvet's picture

"The Chinese invaded"?

Otherwise known as "the Great Tax Hike of 1232 A.D."
I think they should stand down this tax increase...in the name of world peace!

Fri, 04/04/2014 - 02:19 | 4624010 damicol
damicol's picture

Just what the flying fuck is the point of paying another two fucking yen on a cup of cheap coffee when the half witted cretin abe asshole  will print another 40 gadzillion of the fucking things before you can finish drinking it

Fri, 04/04/2014 - 03:33 | 4624051 The Chief
The Chief's picture

Hear, hear!!!

Fri, 04/04/2014 - 04:09 | 4624084 syntaxterror
syntaxterror's picture

This should push the BoJ bond yields down to about 0.03% for the 10-year.

Fri, 04/04/2014 - 09:56 | 4624658 AbbeBrel
AbbeBrel's picture

Diapertrage 101: 

http://wtaq.com/news/articles/2014/mar/31/japan-diaper-shortage-shows-ho...

 

Now that there is shortage of diapers (the article didn't mention if they were mainly kid size or adult) in Japan, then maybe:

 

It is a chance for a round of Diapertrage and a new renaissance for other manufacturers!!   The Chinese have done a great job of completely destroying the trust of their own consumers thanks to scandals with milk, dog food, etc.   So maybe some other area (Washington state) can get an "in" to "covering" the butts of the Chinese market???

P&G (Pampers) listen up!!  (or grey marketers - you know who you are) :-)   slap on those Chinese labels and load those containers!!

Fri, 04/04/2014 - 11:45 | 4625018 Iam_Silverman
Iam_Silverman's picture

Um, yes.  This time is different.  Isn't it?

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