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EPTE Newsletter: Consumption Tax Increase in Japan

Japan increased its national sales tax rate from 8% to 10% effective October 1, 2019. The broad-based tax affects consumer products as well as medical, cellphone services, and business-to-business trade. Some products are excluded from the increase, but 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 are 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 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 five years or so but continue to 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 many variables 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 consumers out once again.

Headlines

Kyocera (electronics company in Japan) 10/7
Will start volume production of a lithium-ion battery with clay-based electrodes for home use with increased battery life.

Sharp (electronics company in Japan) 10/17
Demonstrated a cloud battery based on a lithium-ion battery as an emergency power source system, “JH-WBPB6150,” for home use (capacity: 6.5 kWh).

Kyocera (electronics company in Japan) 10/17
Commercialized a flexible photovoltaic solar cell with a silicon wafer, and because of its flexibility and being lightweight, its applicability became wider.

NGK Insulators (ceramic component supplier in Japan) 10/21
Developed ceramic-based, thin secondary batteries, “EnerCera Series,” which has a high energy density that is double traditional chip-type batteries.

Pioneer (electronics company in Japan) 10/24
Unveiled the R&D plan of LiDAR system for the next-generation of auto driving; the devices will be made by an MEMS process and does not use mechanical parts.

Fuji Chimera Research (market research company in Japan) 10/30
Forecasted 8.65 trillion yen as the electronics packaging market, minus growth from the previous year; the whole market will grow to 1015 trillion yen in 2025.

TSMC (semiconductor manufacturer in Taiwan) 10/24
Will increase the investment in 2019 50% to 15 billion U.S. dollars; TSMC will invest more in 2020 for production of 5-nm chips.

Tohoku University (Japan) 1028
Developed a heat-resistant diode based on the conjunction between Ga2O3 and PdCoO2 that works at 350°C.

Fuji Keizai (market research company in Japan) 10/30
Forecasted 2.67 trillion yen as the market size of all-solid-state batteries in 2035; next-generation batteries will take off after 2030.

Sony (electronics company in Japan) 10/30
Will build a manufacturing plant of image sensors to catch up growing demands. The construction will start in December of this year, and production will start in April 2021.

Nippon Chemicon (component supplier in Japan) 10/31
Unveiled a high-reliability aluminum capacitor series for 5G equipment that survives 6,000 hours test at 125°C.

Nippon Tanshi (connector manufacturer in Japan) 11/1
Released a series of color-coded connection system, “Color Block Connector,” which reduce the risk of missed connections.