Sep 17 2016

Yesterday, Japan’s Automobile Manufacturers Association told Reuters  that it would lower its forecast for new vehicle sales by 8 notches to 4.8 million, down from a previous estimate of 5.3 million for the current fiscal year. As a reason, JAMA cited “a delay in the sales tax hike originally scheduled for next April.” So why would people buy fewer cars when taxes are low?

Without the tax hike next year, say sayonara to the motivation to beat taxman-san. The last tax hike was in April of 2014, when the Japanese consumption tax rose from 5% to 8%. That triggered a boomlet as Japanese rushed to buy at the still lower rate. In March 2014, the last month before the tax hike, Japanese car sales (all segments) were up 21% for the quarter. Pricier import cars saw an even bigger boost of 32%. And it wasn’t just cars. New houses went up everywhere, shops ran out of expensive jewelry, and other luxury goods. People spent a lot of money to save a little

Then came the hangover. Japanese GDP plummeted 8% in the quarter following the tax hike.  A year later, new car registration in the first quarter of 2015 were down 14%