2nd October 2019
Schroders: How will today's consumption tax rise affect Japan's economy?
In a long-awaited move for Japanese economists, investors and policymakers, today Japan raised Value-Added-Tax (VAT) – otherwise known as the consumption tax – from 8% to 10%.
Investors had previously questioned whether the Japanese authorities would opt for a delay, given concerns around the ability of the economy to withstand the hike. However, this time around significant efforts to provide countermeasures and the political capital used by Prime Minister Abe has made it difficult to roll back the planned hike.
Ultimately, the willingness of the authorities to go ahead with the tax rise in a period of external weakness underlines the long-run fiscal challenge that the Japanese government faces, which is exacerbated by demographic headwinds.
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