Henderson’s Michael Martin-Wood, who runs the group’s closed-ended Capital Growth and Horizon Japanese Equity funds, expects the VAT hike, from 5% to 8%, may result in some disruption, but will be a mere blip.
Not the ’90s news
He said the economic landscape, when compared with 1997 when the last VAT increase took place, is very different and will result in a less negative outcome.
Martin-Wood said the rise came as no surprise given GDP figures had been stronger than anticipated, but still came amid fears over the economy tipping back into recession.
To combat this threat, the government will introduce higher fiscal spending, tax breaks and capital expenditure stimulus.
Schroders’ Taku Arai, Japanese equities product manager at the group, said the tax rise presented buying opportunities in those sectors where demand was temporarily affected by the timing of the rise, such as housing.
He said: “There has been strong momentum in home-purchase contracts year-to-date. This may reflect a desire by many home buyers to build houses before the tax comes into effect in April 2014, and implies that momentum could weaken significantly in the coming months.
We believe the underlying trend of home purchases is solid and any weakness in share prices as a result of fall in home purchase contracts could present attractive buying opportunities."
In addition, an economic package worth 5 trillion yen is expected to be announced by early December to offset the negative impact of the tax hike, estimated to be 8 trillion yen over the year.
Arai said while the additional consumption tax increase is planned for October 2015, from 8% to 10%, it was still up for debate and would depend on the state of health of the Japanese economy in the first half of 2015.