Japan's private consumption dampens as GST increases: Fitch Solutions

Spending on personal care is projected to shrink 1.2% annually over 2018 and 2022.

Japan’s private consumption is projected to grow by a muted 1.1% in 2019, Fitch Solutions Macro Research said, amidst a planned hike to the Goods and Services Tax (GST) effective October 2019.

Of the consumer spending categories measured such as clothing and footwear, and alcoholic drinks and tobacco, personal care and effects will be the most impacted by the tax with a projected 1.2% annual decline over 2018 and 2022. However, the GST hike will not be felt on food and other essentials.

Japan’s GST hike was scheduled for 2015, however it was pushed back to 2017, and then delayed once more to late 2019. The tax increase is part of the country’s efforts to address the country’s large public debt and finance its social security system.

GST revenue will go into healthcare for the country’s rapidly ageing population and easing financial burdens of having children to spur family growth.

Meanwhile, Japan’s wage growth and high levels of job security amongst senior employees will help to absorb some of the impact caused by the tax hike, the research agency said. They noted how a majority of households in Japan fell above the middle-income segment, with 76% of total households in 2019 having disposable incomes of US$25,000 and above.

The agency also noted how a projected 1.6% increase in inflation in 2019 could pose further risk to consumer spending.