Japan tax hike to juice spending until 2014: report

Japan tax hike to juice spending until '14: report
26 June 2012, by Michael Kitchen - los Angeles (MarketWatch)
http://www.marketwatch.com/story/japan-tax-hike-to-juice-spending-until-14-report-2012-06-26

With Japan's Diet having just approved a major sales-tax hike, economists expect a sharp pick-up in spending ahead of the increase, followed by a similarly sharp drop, according to a Nikkei news report Wednesday.

Japan's national sales levy -- known as the consumption tax -- currently stands at 5%, but under the law passed Tuesday will rise to 8% in April 2014 and to 10% in October 2015.

As a result, SMBC Nikko Securities economists expect a "spending spree" in the fiscal year running from April 2013 to March 2014, as consumers and businesses move up purchases before the increase goes into effect, lifiting the economy by 1.4% on a price-adjusted basis, the report said.

The surge in spending will then give way to a drop in demand as the tax hike raises prices, cutting 1.8% ou tof the real GDP in fiscal 2014-15, the report said.