#1930 / Consumption Tax Increase in Japan

Japan increased its national sales tax rate from 8% to 10% effective October 1st 2019. The broad based tax affects consumer products as well as medical, cell phone services, and business to business trade. There are products that are excluded from the increase; it is a little complicated. For example, the tax rate for food remains at 8%; however fast food and other prepared meals that are meant for immediate consumption is subject to the new 10% rate. Meals served and eaten on the premise of restaurants and convenient stores are subject to the 10% tax rate.
The bright spot with the tax increase is the influx of sales for big ticket items. Big box stores and Car Dealers increased their advertising during the weeks leading up to the tax hike, urging consumers to purchase now and save money. Sales at many retail outlets spiked in the days leading up to October 1. Purchasing managers for many companies took advantage of these savings and increased their inventories.
The consumer experience in retail outlets changed over the last few of years. Many years ago, the checkout area used a cash register. The new terminology for the old cash register is a POS system. These systems use touch screens, printers, scanners and credit card readers, and increase the efficiency of cashiers. Self-service options are available at many retail stores, reducing labor costs significantly.
I asked myself if any industry will benefit from the national sales tax increase. Right off the bat, software companies that specialize in retail POS systems will collect coding fees from their retail customer base when they download a patch to change the tax rate.
Retail outlets upgrade their hardware every 5 years or so, but continue pay monthly subscription fees for their POS system. The fee includes software, support via phone or text, online reports, and credit card processing. Hardware upgrades are moderately priced, but the yearly subscription fee is necessary and never goes away. Retail outlets that do not pay a subscription fee have to go al a carte to download the new patch, and this can be lucrative for software companies.
Equipment sales for consumers and businesses are very different. The market demand varies, businesses require higher reliabilities, and the gross profit from consumers is less than the gross profits from businesses. The spike in sales came directly from the consumer. Business to Business sales do show an increase, but there are many variables that go into these purchases and timing was essential. There may be money left on the table from business sales, but the consumer had the ability to panic buy during the days leading up to the tax change.
How much did the influx of sales total? We will find out when the large retailers report their quarterly results. Hopefully it’s a huge number that will roll up to domestic manufacturers in Japan.
This upswing in sales is good, but it is only temporary. Let’s hope the holiday season brings the consumer out once again.

Dominique K. Numakura, dnumakura@dknresearch.com
DKN Research, www.dknresearch.com

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Headlines of the week
(Please contact haverhill@dknreseach.com for further information and news.)

  1. Kyocera (Major electronics company in Japan) 10/7
    Will start volume production of new lithium ion battery with clay-based electrodes for home use. It makes battery life longer.
  2. Sharp (Major electronics company in Japan) 10/17
    Has demonstrated a new cloud battery based on lithium ion battery as emergency power source system JH-WBPB6150 for home use. Capacity: 6.5kWh
  3. Kyocera (Major electronics company in Japan) 10/17
    Has commercialized a new flexible photovoltaic solar cell with silicon wafer. Because of flexibility and light weight, its applicability became wider.
  4. NGK Insulators (Major ceramic component supplier in Japan) 10/21
    Has developed new ceramic base thin secondary batteries, “EnerCera Series”. It has a high energy density, double of traditional chip type batteries.
  5. Pioneer (Major electronics company in Japan) 10/24
    Has unveiled the R&D plan of new LiDAR system for the next generation auto driving. The new devices will be made by MEMS process and it does not use mechanical parts.
  6. Fuji Chimera Research (Market research company in Japan) 10/30
    Has forecasted 8.65 trillion yens as the electronics packaging market, minus growth from previous year. The whole market will grow to 1015 trillion yen in 2025.
  7. TSMC (Major demiconductor manufacturer in Taiwan) 10/24
    Will increase the investment in 2019 50% to 15 billion US dollars. TSMC will invest more in 2020 for production of 5 nm chips.
  8. Tohoku University (Japan) 1028
    Has developed a new heat resistant diode based on conjunction between Ga2O3 and PdCoO2. It works at 350 degree C.
  9. Fuji Keizai (Market research company in Japan) 10/30
    Has forecasted 2.67 trillion yens as the market size of all solid state batteries in 2035. Next generation batteries will take off after 2030.
  10. Sony (Major electronics company in Japan) 10/30
    Will build a new manufacturing plant of image sensors to catch up growing demands. The construction will start Dec. this year. Production will start April 2021.
  11. Nippon Chemicon (Major component supplier in Japan) 10/31
    Has unveiled a new high reliability aluminum capacitor series for 5G equipment. They survive 6000 hours test at 125 degree C. Samples will be available Jan. 2010.
  12. Nippon Tanshi (Major connector manufacturer in Japan) 11/1
    Has unveiled a new series of color coded connection system “Color Block Connector”. They reduce risks of miss connections.

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