Our correspondent Chris Loew writes from Japan:
My wife stocked up on household items and got our car serviced in advance of the hike in the consumption tax from 5% to 8%. Many acquaintances timed purchases of cars or major appliances to avoid the tax rise. Front-loading expenses results in contraction later.
The tax exemption for mortgage interest was also recently halved. Wage increases have not kept pace with inflation. The weak yen has brought an increase in fuel prices. So consumers must tighten their belts. I expect consumer durables to tank.
Many US state sales taxes exempt food, but Japan doesn’t. Nonetheless, a recent TV report quoted department store execs as saying they are counting on their specialty food sections (usually in the basement of Japanese department stores) to offset reduced sales elsewhere. Perhaps people will load up on cheeses and wines, rather than buying a car or computer. Food is viewed as a defensive sector. But there is already consumer resistance to food price increases, while food companies are being squeezed by higher import costs from the weaker yen. It is hard to expect big profits there.
The best performing companies will be ones with more sales and production outside of Japan.
As Indians line up to vote, most observers expect a victory for the supposedly pro-business Bharatiya Janata Party (BJP) of Narendra Modi. One result has been a boom in Indian stocks and the rupee. The rise, in my opinion, is illusory. The BJP confirmed yesterday that it would ban foreign supermarkets from the $500 bn Indian retail sector, according to Reuters.
Of course this is bad news for global chains. But it is also bad news for Indian households. The BJP said it welcomes foreign direct investment in all sectors that create local jobs, except supermarkets. That’s what “free-markets” means in India.
Some 18 months ago, the current Congress government allowed foreign supermarket chains in but then left it to individual states to set conditions. So politically powerful local traders could block global chains like Carrefour or Walmart. Small shopkeepers have clout with the BJP. Having seen improved living standards as big retailers arrived in European countries like France and Portugal to compete with high-priced village shops, I think it outrageous that Indian grocery consumers will not get the same money-saving chances.
