Japanese Demand Questions Linger

Please see below the latest ‘Chart of the Week’ from State Street Global Markets


This week Tim Graf, head of Macro Strategy for Europe, the Middle East and Africa, notes how the response of Japanese prices to a recent rise in the consumption tax rate is indicative of faltering demand. He comments, “Four weeks after raising consumption taxes for the second time in five years, weakness in Japanese demand is becoming more obvious. The reaction to the tax rise in our PriceStats* Japan series, a daily gauge of online retail prices, is telling. In 2014, retailers felt comfortable passing on more than half of a three percent sales tax rise within a week of its implementation. Whereas only about 30 percent of the most recent rise of two percent has made its way into online prices.


“The logical implication is that retailers are absorbing the extra cost, offering discounts to mitigate the effects of the tax rise. With exports and the industrial sector also under pressure thanks to slowing global growth, a weaker consumer is probably not what the Bank of Japan wants to see. While little is expected from their upcoming policy meeting this week, further easing is justified. The performance of Japanese retailers could also come under some pressure given the implication of narrower margins.”

Weakness of Japanese demand showing up in online prices


* About State Street PriceStats®

PriceStats is a provider of high-frequency global inflation indices that offer insights into key macroeconomic variables. The indices are generated using software that scans the underlying code on public websites to capture the full array of products sold by online retailers, including food, beverages, electronics, apparel, furniture, household products, prescription drugs, and over-the-counter medicines. The technology monitors price fluctuations on roughly five million items sold by hundreds of online retailers in more than 70 countries. The PriceStats methodology is grounded in the extensive body of research of MIT professors Alberto Cavallo and Roberto Rigobon and their Billion Prices Project at MIT. Cavallo and Rigobon have leveraged this research and their expertise in monetary economics to develop the PriceStats indices.

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