This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Looming Japanese Tax: Trigger for Stock Losses or Priced in?

NEW YORK (The Street) -- Japanese stocks have been a source of grief for investors in 2014 after stellar performance last year, seeming to confirm pessimistic forecasts that structural reform would fail.

Now market sentiment faces another hurdle: a hike in Japanese consumption tax from 5% to 8% on Tuesday, aimed at helping reduce national debt that stands at almost 245% of GDP.

Last time Japan lifted its sales tax in 1997 the economy fell into recession shortly afterwards, albeit against the backdrop of the Asian financial crisis.

Fast-forward nearly two decades and Japan's economy is still struggling, growing at less than half the expected pace in the fourth quarter.

While Abenomics - a package of monetary easing, structural reform and fiscal stimulus - fuelled a 52.6% jump in the Nikkei last year, lasting structural change appears elusive.

Concerns around the sustainability of reform and Japan's debt pile, along with a strengthening yen have seen the Nikkei slump 7.6% so far this year.

But Wilmington Trust investment strategist Clem Miller voices the sentiment of many fund managers. "The tax has been anticipated and built into the market price so it's likely to have a marginal impact when it comes into place," he said.

Contrast this to the unexpected Ukraine situation, which has shaken markets in large part due its unknown ramifications.

Other fund managers note the consumption tax may be easily offset by further stimulus from the Bank of Japan, which is keen to ensure the economic recovery is not derailed.

In addition many Japanese companies have robust balance sheets with net cash - a contrast to the late 1990s - making another recession unlikely.

If market sentiment is shaken by this tax, more stimulus would be a positive for Japanese stocks, despite failing to address underlying structural issues.

For example, Miller and others note that a depreciating yen - which fell 17% last year - has done little to boost the fortunes of Japanese exporters, many of which already have operations outside Japan.

Like many developed nations, Japan also has an ageing population. But a far lower level of workforce participation by women compared to Western nations is adding to its national debt woes, with required cultural change expected to take at least a generation despite any economic incentives Abe may introduce.

The takeaway: Japan's consumption tax is unlikely to trigger a further nosedive in shares. But don't bet on a fast recovery for the Nikkei unless the Bank of Japan re-juices its stimulus pump.

-- By Jane Searle in New York

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs