Japanese government to go ahead with sales tax rise

The tax increase is needed to reduce Japan's massive budget deficit, says government adviser Professor Naoyuki Yoshino

Related Stories

Japan's Prime Minister Shinzo Abe said his government will raise the rate of sales tax to 8% from 1 April next year, from the current 5%.

Policymakers have argued that the hike is key to reducing Japan's public debt - which now stands as around 230% of its gross domestic product (GDP).

There have been concerns that such a move may hurt domestic demand.

However, analysts said recent data showing signs of a recovery in the economy had helped allay those fears.

Legislation passed by Mr Abe's predecessor last year had called for the rate to be raised.

The government needs to increase its revenue as it looks to fund rising welfare costs, driven by an ageing population.

It is estimated that 40% of Japan's population will be of retirement age by 2060.

Mr Abe was quoted by the AFP news agency as saying the tax hike was aimed at "maintaining the nation's trust and handing over a sustainable social security system to the next generation".

He added that his government would unveil a fresh stimulus package to ease the impact of the hike on businesses and households.

'Broad-based improvement'

Start Quote

Japan's economy is on track, and the tankan has shown broad-based improvement in sentiment”

End Quote Yasuo Yamamoto Mizuho Research Institute

Earlier on Tuesday, the Bank of Japan's closely-watched Tankan survey showed a sharp improvement in sentiment among Japanese manufacturers.

The big manufacturers' index rose to plus 12 in the July-to-September quarter, from plus 4 in the previous three months.

Manufacturers also plan to increase their spending in the current financial year, which should help boost growth.

The improvement comes amid signs of a recovery in the Japanese economy after years of stagnant growth.

"Japan's economy is on track, and the tankan has shown broad-based improvement in sentiment," said Yasuo Yamamoto, a senior economist with Mizuho Research Institute in Tokyo.

"Manufacturers had been lagging the overall economy, but the tankan shows improvements in this sector are starting to catch up due to exports and a weak yen."

The sentiment indexes are calculated by subtracting the percentage of respondents who say business conditions are poor from those who say they are good.

A positive reading means optimists outnumber pessimists.

Workers at a factory in Japan Japan's big manufacturers have benefited from the recent weakness in the yen
Abenomics boost

Prime Minister Shinzo Abe, who came to power in December last year, has unveiled a series of aggressive policy measures aimed at reviving Japan's economy.

Japanese Yen v US Dollar

Last Updated at 08 Sep 2014, 08:46 ET JPY:USD three month chart
¥1 buys change %
0.0090
0.00
+0.04

His moves, which have come to be known as Abenomics, have started to have some impact on Japan's growth.

At the same time, Japan's central bank, the Bank of Japan, has also taken some steps - including setting a 2% inflation target and doubling the country's money supply - to help boost growth.

These measures have resulted in a sharp decline in the yen's value. The Japanese currency has fallen nearly 25% against the US dollar since November last year.

A weak yen bodes well for Japan's large manufacturers, who rely heavily on exports for their growth, as it makes their good more affordable for foreign buyers.

It also helps boost their profits when they repatriate their foreign earnings back home. Many leading Japanese firms have reported an improvement in profits recently.

Analysts said that an improvement in earnings, coupled with the signs of a recovery in the Japanese economy, had helped boost morale.

"Earnings recovery on the back of a weaker yen, which affected only limited sectors at the time of the previous survey, has spread to a wider part of industry," said Yoshimasa Maruyama, chief economist with Itochu Economic Research Institute in Tokyo.

More on This Story

Related Stories

More Business stories

RSS

BBC Business Live

  1.  
    TESCO PROFITS Via Twitter Adam Parsons Business Correspondent

    tweets: "Tesco won't confirm my revelation that Chris Bush has stepped aside. But will confirm that Robin Terrell is now doing his job!"

     
  2.  
    TESCO PROFITS 09:31:

    Tesco chairman Richard Broadbent says the retailer's investigation is focusing on the reporting of payments made to Tesco from its suppliers. It seems to be an issue of the timing of payments, rather than a "hole" in the accounts.

     
  3.  
    TESCO PROFITS 09:18:

    Dave Lewis, Tesco chief executive, will not confirm that Chris Bush the managing director is one of the four executives suspended as part of its investigation into its profits reporting. He is speaking to journalists on a conference call.

     
  4.  
    MARKET UPDATE 09:16:

    Aside from Tesco the FTSE 100 index is lower by 0.66% at 6,792 just over an hour into the trading day. Tesco is perhaps unsurprisingly the biggest faller. Meanwhile, engineering firm Petrofac is the biggest riser, up 1.72% to 1066p.

     
  5.  
    TESCO SHARES 09:11:

    Tesco's share price is beginning to stabilise a little. Having fallen 11.3% on the open to 203.5p, Tesco shares are currently trading 7.99% lower at 211.25p

     
  6.  
    TESCO PROFITS 09:01: BBC Radio 4

    James Bevan, chief investment officer at CCLA Investment Management, tells Today the profit warning from Tesco could amount to falsifying accounts. "They have decided to account for profits arising in future periods in the current period, and deferred costs that otherwise should have been recognised. That's really serious."

     
  7.  
    TESCO PROFITS 08:57: Via Email

    Richard Hunter, head of equities at Hargreaves Lansdown, says Tesco's profit warning "does not come close to jeopardising overall profitability" at the supermarket, and the market will be happy that at least the bad news is out in the open and being dealt with.

     
  8.  
    UK ECONOMY 08:44: BBC Breakfast
    Jeremy Cook

    Breakfast's Steph McGovern is down in London in the financial district talking to Jeremy Cook, chief economist at World First foreign exchange, who says we should be focusing on how strong the UK economy is following the Scottish referendum. Unemployment is down, GDP is growing - "all very very good news".

     
  9.  
    TESCO PROFITS Via Twitter

    Sean Farrell on the Guardian's City Desk tweets: "Tesco CEO Lewis: 'This is not in the ordinary course of events. This has been audited by a big reputable firm.'

     
  10.  
    HEADLINES
  11.  
    TESCO PROFITS 08:35: Radio 5 live

    Four senior Tesco executives including the UK managing director Chris Bush have been suspended, while an investigation into profits reporting is carried out, Adam Parsons says on Radio 5 live. The share price has recovered a bit but is still down more than 9%.

     
  12.  
    MINIMUM WAGE 08:21: Radio 5 live

    Shane Brennan from the Association of Convenience Stores says the minimum wage is becoming a "political football" between the main political parties, and warns a rise could hit employees negatively. "When the minimum wage goes up, small retailers cut back on the hours they offer staff," he tells Radio 5 live.

     
  13.  
    CHILD BENEFIT 08:18: Radio 5 live

    Ed Balls is talking about the minimum wage on 5 live Breakfast, but he keeps falling off the air. He was half way through explaining how the Labour party wants to extend the child benefit cap - one of those "difficult decisions" necessary to "balance the books".

     
  14.  
    TESCO SHARES 08:14:

    Tesco's shares opened down 11.3% at 203.5p - that's its lowest price since May 2003 - more than a decade ago.

     
  15.  
    TESCO SHARES 08:09: Breaking News

    Tesco's share price falls by more than 10% in the first few minutes of trading in London.

     
  16.  
    MOSS BROS PROFITS 08:04:

    Menswear retailer Moss Bros has reported a pre-tax profit of £1.95m for the six months to July. That's slightly lower than their previous guidance and reflects the number of stores that were closed for refit in the first half of this year, the company said. Like for like sales were 6.4% higher.

     
  17.  
    TESCO PROFITS Via Twitter Robert Peston Economics editor

    tweets: "Tesco! Oh my giddy aunt. Never thought it would come to this http://www.investegate.co.uk/tesco-plc--tsco-/rns/trading-update/201409220700142186S/ …

     
  18.  
    ALIBABA 07:55:
    Alibaba

    The Financial Times reports that Alibaba, the Chinese ecommerce group, has boosted the value of its IPO to $25bn (£15bn) by selling extra shares. That makes it the biggest IPO in history. Huge investor demand saw the company's share price surge 38% on its debut on the New York Stock Exchange on Friday.

     
  19.  
    TESCO PROFITS Via Twitter

    Richard Hunter from stockbrokers Hargreaves Lansdown tweets: "Profit warning on a profit warning for #Tesco likely to put further pressure on a share price already down 39% over the last year"

     
  20.  
    STOCK MARKET FLOAT 07:47:

    Other news from the stock market this morning: British bank Aldermore says it will float on the London Stock Exchange in October, aiming to raise £75m. Aldermore focuses on lending to small and medium-sized businesses and homeowners.

     
  21.  
    TESCO PROFITS Via Twitter Adam Parsons Business Correspondent

    tweets: "Dave Lewis initiated inquiry over weekend. Am told Philip Clarke has officially left Tesco, but remains available to talk to investigation."

     
  22.  
    PHONES 4U RESCUE 07:36:
    The Phones 4U shop sign.

    Phone network EE is to buy 58 Phones 4U stores - safeguarding 359 jobs - in a deal with administrator PricewaterhouseCoopers. The phone network was known to have entered negotiations over the weekend. On Friday Vodafone agreed to take over 140 Phones 4U shops.

     
  23.  
    TESCO PROFITS Via Twitter Adam Parsons Business Correspondent

    tweets: "Tesco were due to report Interims next week. That has now been cancelled."

     
  24.  
    LABOUR CONFERENCE 07:26: BBC Radio 4

    Labour shadow business secretary Chuka Umanna tells Today Labour is pro-business, but says: "What we have been clear about is we can't go back to business as usual and the kind of fast buck culture we saw in some parts of the economy that helped contribute to the 2008/09 crash."

     
  25.  
    TESCO PROFITS Via Twitter

    City grandee David Buik tweets: "It never rains but it pours dear old Tesco. It appears profits have been over-stated by £250 mn - shares could be down 5% at the opening."

     
  26.  
    TESCO PROFITS 07:15:
    A group of Tesco shopping trolleys

    "We have uncovered a serious issue and have responded accordingly," said Dave Lewis, who took over as the boss of Tesco last month. "The chairman and I have acted quickly to establish a comprehensive independent investigation. The board, my colleagues, our customers and I expect Tesco to operate with integrity and transparency and we will take decisive action as the results of the investigation become clear."

     
  27.  
    TESCO PROFITS 07:11: Breaking News

    Tesco has released a statement saying it over-stated its expected profit for the six months to 23 August. In a trading statement on 29 August it said it expected half-year profits to be £1.1bn. It has now revised this down by £250m.

     
  28.  
    LISTEN AGAIN Via Twitter Adam Parsons Business Correspondent

    tweets: The #WUTM podcast. All yours: bbc.co.uk/podcasts/serie…

     
  29.  
    AIR FRANCE 07:03:
    Air France planes

    Pilots at Air France are looking ahead to a second week on strike this morning. France's transport minister Alain Vidalies says the fate of Air France is at stake in the dispute. Pilots are angry that the airline is expanding its budget carrier, which pays pilots less.

     
  30.  
    LABOUR ANTI-BUSINESS? 06:55: BBC Radio 4

    Lord Jones tells Today that Labour has not given business the credit it deserves. "Without the wealth that business creates you have no public sector, you have no taxation, you don't have one job in the country. That's how important business is," he says.

     
  31.  
    LABOUR ANTI-BUSINESS? 06:51: BBC Radio 4
    Digby Jones

    Lord Digby Jones, former head of the CBI and member of the last Labour government tells Today that Labour is casting doubt on its support for the UK business community. "Whatever the current shadow cabinet say - let's nationalise the banks, let's have a social market in energy, lets increase business taxes, whatever it may be - they are showing by their actions that they actually don't get it," he says.

     
  32.  
    DEVOLUTION 06:42: Radio 5 live

    Wake Up to Money has been discussing the prospects for more devolution across the UK in the wake of the "No" vote in Scotland. Tony Travers from the London School of Economics says the UK is one of the most centralised democracies in the world - 95% of tax revenues go straight to the exchequer.

     
  33.  
    MINIMUM WAGE 06:35: BBC Radio 4

    Is Labour leader Ed Miliband's pledge to raise the minimum wage to £8 per hour by 2020 anti-business?Simon Walker, head of the Institute of Directors, tells the Today programme he shares many of the Labour party's concerns - on energy prices, zero-hours contracts and wages. "But... we don't agree with Labour's instinct to legislate or regulate on these matters," he says.

     
  34.  
    MARKETS 06:29: BBC Breakfast
    Breakfast

    Breakfast's Steph McGovern is in the City in London before dawn this morning, talking to analysts and market traders about what's moving the markets after the "No" vote in Scotland last week. She'll be talking to a currency trader later to find out what's going to happen to the pound.

     
  35.  
    MINIMUM WAGE 06:18:

    Labour's leader Ed Miliband says Labour will put the minimum wage up to £8 an hour if they win the election next year - up from the £6.50 is due to rise to this October. The unions say that's not enough, and want £10 an hour, while the CBI warns any rise will "put jobs at risk".

     
  36.  
    LABOUR CONFERENCE 06:12:
    Labour shadow  chancellor Ed Balls

    Ed Balls is expected to say that Labour will reinstate the 50 top rate of tax in his speech to the party conference later today. That's not necessarily news. But Labour haven't been completely clear on whether they would reinstate the 50p tax band until now. The inclusion of the proposal essentially amounts to an election promise eight months out from the general election.

     
  37.  
    Phones 4U 06:02: Radio 5 live

    EE has confirmed it's looking into buy a few of those Phones 4 U shops now on the market. Judy Palmer from Begbies Traynor defends EE and Vodafone, the operators accused of helping to put the mobile retailer out of business, on Wake Up to Money calling their actions "commercial hardball".

     
  38.  
    06:01: Edwin Lane Business reporter, BBC News

    Hello all. We're also getting the latest on the fate of Phones 4U, after it went into administration last week. Get in touch with us on bizlivepage@bbc.co.uk or tweet us @BBCBusiness.

     
  39.  
    0600: Matthew West Business Reporter

    Morning folks. We start the day with news that luxury shoe brand Jimmy Choo is looking at a stock market float in London, there are also half year results from Moss Bros. The Labour party conference goes into its second full day with a speech from shadow chancellor Ed Balls. It's his last conference speech before the election so we'll bring you any nuggets from that too. Stay with us.

     

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.