Tax matters for Japan, says Invesco Perpetual’s Chesson
We remain bullish on the outlook for Japanese equities, says Paul Chesson, head of Japanese Equities at Invesco Perpetual.
As expected, Prime Minister Abe confirmed that Japan’s consumption tax will rise from 5% to 8% in April 2014, in line with the original schedule, with a further rise to 10% planned for October 2015.
The announcement was accompanied by a fresh economic stimulus plan designed to mitigate the potential negative impact on Japan’s economic recovery from the higher tax rate.
Estimates from Credit Suisse suggest that at 5% the consumption tax accounted for around 24% of government tax receipts in fiscal year 2012, hence increasing the rate is an important element of Japan’s longer term move to a more sustainable fiscal path.
The net impact on the economy in the near term from the tax rise and stimulus plan is difficult to predict. However, with Japan benefiting from on-going improvement in the global economy, from a weaker yen as the central bank continues its easing programme and from a combination of undemanding valuations and a strong corporate earnings recovery, we remain bullish on the outlook for Japanese equities.