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Japan Shoppers Snap Up Toilet Rolls, Rolexes Before Tax Rise

Aeon supermarket
An employee places a new price sign on bottles of coffee ahead of consumption tax hike at an Aeon Co. supermarket in Chiba, Japa. Photographer: Tomohiro Ohsumi/Bloomberg

Kazuyuki Mouri, a Japanese game developer, recently spent $500 on toilet paper and soft drinks on to last him for the next three months.

Like many shoppers in Japan, the 33-year-old stocked up before the country introduced the first increase of its national sales tax since 1997. The consumption tax rises to 8 percent from 5 percent today.

“I’ll need to cut back on expenses because we have to deal with the tax hike,” said Mouri, who was grocery shopping at an Aeon Co. store in Shinagawa, central Tokyo.

Japan is bracing for a possible fallout after the tax takes hold, with companies including Kirin Holdings Co., Sony Corp., Sharp Corp. and Toyota Motor Corp. anticipating softer demand following a spike in last-minute purchases. The tax increase is part of Prime Minister Shinzo Abe’s effort to rein in the world’s biggest debt burden, even as he tries to spur 2 percent inflation with his broader Abenomics economic stimulus.

“Retailers are trying to sell as much as they can ahead of the tax hike because nobody knows the exact impact yet,” said Yoshihiro Ito, chief strategist at Okasan Online Securities in Tokyo. “If you buy a 50 million yen condo, a 3 percent increase means about 1.5 million yen. That’s huge.”

While the effects for daily necessities and lower-priced consumer products could be short lived, sales of the more expensive goods and big-ticket items such as cars and home appliances could take a longer time to recover, he said.

Rolexes, Fridges

At Aeon, large home appliances such as fridges and washing machines, and Shiseido Co. cosmetics and Rolex watches were some of the most popular items before the tax increase, said Kazuhiro Yoshida, a company spokesman. Sales started to climb from the end of last year and peaked in March when receipts jumped 20 percent, he said.

Toyota’s luxury Lexus models recorded a 16 percent increase in sales in February, extending consecutive monthly gains since August, according to Kayo Doi, a company spokeswoman.

While companies from Toyota Motor Corp. to Mitsubishi UFJ Financial Group Inc. have agreed to raise wages, gains in salaries aren’t keeping up with rising living costs. Labor cash earnings, the broadest measure of pay, was unchanged in February, according to a government report today.

Last week, the government reported a surprise drop in consumer spending in February and said it will speed up deployment of government cash in coming months. Policy makers are taking steps to avoid a repeat of 1997, when the last bump in the levy helped tip the nation into a recession.

Weakening Spending

“The power of consumer spending is weakening,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “Japan is trying to raise prices no matter what and households are likely to be the victim of the campaign.”

The increase in the levy is forecast to trigger a roller-coaster performance for gross domestic product in the first six months of 2014, with a 4.4 percent annualized surge in January-to-March followed by a 3.5 percent contraction the following quarter.

Some companies are nervous about the tax increase’s impact as Japanese shoppers are expected to turn cautious and tighten their belts, Okasan’s Ito said.

Aeon, Sharp and Sony expect an initial dip in demand after the new tax policy, with Aeon anticipating a pickup as soon as a month later.

Kirin, Japan’s biggest beverage maker, and competitor Asahi Group Holdings Ltd. forecast 2014 net income that was at least 13 percent less than analysts estimated, partly blaming the sales tax increase.

Suntory Beverage & Food Ltd., the Japanese drinks maker that had Asia’s biggest initial public offering last year, was holding off acquisitions for a year to bolster operations as competition intensifies.

Output Cut

Toyota has said it plans to cut domestic output by 5 percent this year as it projects local demand to shrink by the same magnitude with the increase in the sales tax.

Auto sales in Japan, the world’s third-biggest market, are forecast to drop 16 percent from April, according to the Japan Automobile Manufacturers Association.

“After the Lehman crisis, all carmakers have become much more stronger, but we will have to keep a close watch of the situation ahead of us,” Akio Toyoda, chairman of the group, said last month of the possible declining demand. Toyoda is also president of Toyota Motor.

For Ritsuko Nirasawa, owner of a hair salon in Shinagawa, she plans to promote her shop on Facebook and blogs to keep clients.

“Customers are sensitive to prices,” said Nirasawa, who’s worked 20 years in hairdressing. “I’m not getting much profit margin but I’ve started to give away shampoos or coupons to customers because I want them to continue coming even after the tax hike.”

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