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January 05, 2014

Japan Companies Say Recovery to Survive Higher Tax, Poll Shows

More than 80 percent of large Japanese companies expect the nation’s economic recovery to survive Prime Minister Shinzo Abe’s planned sales tax increase in April, according to a survey by the Mainichi newspaper.

The economy will return to a recovery path in the second half of the year after slumping when the sales tax increases in April, said 95 companies, or 77 percent of respondents. A further 6.5 percent don’t expect the economy to falter as Abe’s government will offset the impact with increased spending, the newspaper reported.

Only 3.2 percent of firms responding expect the economic recovery to stall as the tax jumps to 8 percent from 5 percent. In October, Abe decided to proceed with the tax increase legislated by his predecessor to help rein in the world’s heaviest debt burden.

The hike may deal a blow to growth as the economy will likely shrink an annualized 3.9 percent in the second quarter before returning to growth, according to a Bloomberg survey.

The Bank of Japan is buying more than 7 trillion yen ($67 billion) of government bonds each month as Abe and BOJ Governor Haruhiko Kuroda strive to end 15 years of deflation and hit a target of 2 percent inflation.

The unprecedented monetary stimulus triggered an 18 percent drop in the yen last year, helping exporters such as Toyota Motor Corp. (7203) boost profits.

Exchange Rate

Predicted highs and lows for the currency’s exchange rate range from 96.86 yen to 108.25 yen per dollar, according to the Mainichi survey.

About 48 percent of respondents -- which included Sony Corp. (6758), Nomura Holdings Inc. and SoftBank Corp. (9984) -- expect the Nikkei 225 Stock Average to top 17,000 after it climbed 57 percent to 16,291.31 last year, the paper reported.

Twelve percent of companies in the survey said they’re considering raising wages from April, the start of Japan’s fiscal year, while the rest were undecided or declined to answer.

Labor cash earnings, the wage benchmark, will increase 0.6 percent in the year starting April 1, according to the median forecast in a poll of 16 economists by Bloomberg News.

Consumer prices are set to climb five times faster, increasing 3 percent, as Japan raises the sales tax for the first time since 1997, a separate Bloomberg survey shows.

The squeeze on consumers from higher prices risks undermining public support for Abenomics and dragging on retail spending, unless Abe can convince companies to boost wages to cushion the blow.

About 17 percent of respondents expect the Bank of Japan to meet its two-year target of 2 percent inflation, while 43 percent answered it will be difficult within that timeframe though achievable over a longer period, Mainichi said.

bloomberg.com

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