The general consensus seems to be that the upcoming consumption tax increase in Japan has been so thoroughly analyzed that its impact is baked into future projections. My crystal ball in regard to the impact of the 3% increase in the consumption tax from 5% to 8% is rather cloudy. But it seems like the impact could be more severe than most analysts seem to expect. The sales tax increase could set off an ugly downward cycle.
Here are a couple of other events that led to the type if forward shifting of demand that the upcoming tax increase is producing
Japan - The April 1, 1997 2% increase in the consumption tax from the then 3% to 5% led to a huge increase in sales of big ticket items in the run-up to the hike in rates. However, it was followed by a year and and half recession.
Global - The boom and bust in purchases of high tech capital goods due to Y2K compliance led to a recession in 2000 that hit virtually every developed economy.
Japan's economy is already under huge duress due to an aging population. With 24% of the population age 65 or older, no other country in the world has so many senior citizens to support. Japan still has a labor force participation rate of 59% (versus 63% in the U.S.), but it bound to decline over time.
Japan government spending, deficits, and debt make one dizzy just pondering the numbers, as pointed out by Wolf Richter. The Japanese government's Ponzi game of borrowing half of spending and creating demand for the borrowing via money printing will ultimately lead to a collapse. The $70 billion a month of "quantitative easing" by the Bank of Japan to soak up demand for Japanese government debt is ultimately a recipe for a Weimar Republic like collapse.
The Japanese economy is headed for a calamity at some point in the future due to the massively excessive debt and deficit. Will the April 1 consumption be the straw that breaks the camel's back? Probably not. However, don't be surprised if the boom bust impact of the April 1 consumption tax increase is worse than most analysts are projecting. It seems reasonably likely that Japan is in for a nasty recession during the balance of 2014.