Tax Increase Puts a Chill on Retail Sales in Japan

TOKYO — Japanese retail sales fell in April at their fastest pace in three years as sales of cars and electronics declined, government data showed Thursday, offering the first indication of how consumers are reacting to a sales tax increase that took effect on April 1.

The 4.4 percent decrease in retail sales from the same month last year was more than the median estimate among analysts polled by Reuters of a 3.3 percent decline, and was the biggest drop since the devastating earthquake and tsunami in March 2011.

The decrease in sales of apparel and toiletries was limited, according to figures from the Ministry of Economy, Trade and Industry, but there are worries that a recovery in durable goods could take more time.

“There are signs that declines in spending on daily necessities is already bottoming out, which supports a gradual recovery in spending,” said Shuji Tonouchi, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities.

The government raised the nationwide sales tax to 8 percent, from 5 percent, in April to cover rising welfare costs. But the tax increase has caused economic volatility and concern that Japan, the world’s third-largest economy after the United States and China, will experience a prolonged contraction if consumers shun higher prices.

In March 1997, the month before the last time the government raised the sales tax, retail sales rose 12.4 percent, compared with the same month the year before. They fell 3.8 percent that April, after the tax went into effect. Retail sales remained weak for the remainder of that year as the economy skidded into recession.