Japan’s tax hike expected to hit Asian economies

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SINGAPORE: Japanese consumers are nursing their bruised wallets after the country hiked its sales tax from 5 per cent to 8pc on April 1, but they are not the only ones.

Exporters elsewhere in Asia that ship their goods to Japan could also suffer from a pullback in consumer demand, according to a new report by Credit Suisse.

Malaysia, Hong Kong and Singapore stand to be the most affected at first glance, said bank economist Santitarn Sathirathai. These three export the most to Japan in the region as a share of their annual economic output.

Malaysia’s total exports to Japan amount to 8.1pc of its gross domestic product, while Hong Kong’s come to 6.4pc and Singapore’s stand at 6 per cent, Sathirathai noted.

But he added that this data is “potentially misleading” for two reasons.

One is that not all exports that go to Japan are meant to be bought by the consumers in that country. Such shipments “may not go to meet final demand in Japan but are used to manufacture final products that are then exported elsewhere”, he said.

Therefore, even if local consumer spending in Japan slows down, it may not affect demand for these exports.

The other reason is that some exports that countries such as Malaysia sell to Japan are consumer essentials, such as energy products.

Demand for such products is likely to be less sensitive to short-term fluctuations in spending, Mr Sathirathai said.

The bulk of Singapore’s exports to Japan are machinery and transport products. These items are among those that consumers stocked up on right before the rise in the sales tax, so they may be vulnerable to changes in spending decisions, he noted.

On the whole, however, it appears that the Philippines and Thailand may be the economies in Asia most affected by a potential slowdown in household spending in Japan, Mr Sathirathai’s analysis shows.

A “significant proportion” of their exports are products where price changes have a large effect on demand, he said.

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