Criticism about Japan’s sales tax hike may be unwarrantedJapanese prime minister Shinzo Abe confirmed that the much heralded increase in value-added tax (VAT) will go ahead as planned next April rising from 5% to 8%. Such news does not come as a surprise given that the recent gross domestic product (GDP) figures, a measure by which the government had said that it would judge the validity of a rise in the tax, came in stronger than initial estimates. Janus Henderson Investors | 02.10.2013 08:34 Uhr
It should also be noted that in relation to the last increase in VAT in 1997, which some believe had a detrimental impact on activity, the economy is much changed. Back then, the ravages of deflation (falling prices) were taking hold ahead of what became a very difficult period for the economy. This resulted in the eventual cleaning up of the banking sector several years later. Today the economic picture is very different. Bank lending is rising, housing is recovering and the outlook for corporate profitability is improving strongly aided by yen weakness. Inflation is beginning to return. Moreover, the political sphere looks more solid than it has for some time and with a clear road unencumbered by elections for the next three years, the highly popular prime minister should be able to implement policies to further stimulate activity. The VAT hike may result in some disruption but we trust that on reflection it will merely be a bump in the road for Japan’s drive towards recovery.
Michael Wood-Martin, manager of the Henderson Japan Capital Growth Fund and the Henderson Horizon Japanese Equity Fund.
These are fund manager views at the time of writing and may differ from those of other Henderson fund managers. The information should not be construed as investment advice. Before entering into an investment agreement please consult a professional investment adviser.