High-rise buildings are seen at the Shinjuku business district during sunset in Tokyo, Japan, March 7, 2017. Picture taken March 7, 2017. REUTERS/Toru Hanai/File Photo Purchase Licensing Rights , opens new tab

Summary Most Japan firms say tariffs have not changed investment plans

Firms favouring sales tax cut outweigh those opposed

Majority of firms say sales tax cut ought not be funded by bonds

TOKYO, June 19 (Reuters) – A significant majority of Japanese firms have found the business impact of U.S. President Donald Trump ‘s tariffs within expectations and have not found it necessary to change investment plans, a Reuters survey showed on Thursday.

The United States has imposed a 10% tariff on goods from most countries along with additional tariffs for many big trading partners including Japan, which could face a 24% tariff from July unless it can negotiate a deal.

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There is also a 25% tariff on cars, a particular sore point for Japan whose economy relies heavily on automobile exports to the United States.

About 71% of respondents to Reuters’ survey said the impact of U.S. tariffs is within initial expectations, and 84% said they plan to stick to their investment plans for the current business year – typically April-March in Japan.

“After all, the Trump administration ends in four years. If we don’t carry on with our long-term investments, we’ll lose out in competition with other Asian countries,” a manager at a machinery manufacturer wrote in the poll.

The survey was conducted by Nikkei Research for Reuters from June 4-13. Nikkei Research reached out to 504 companies and 220 responded on condition of anonymity.

SALES TAX CUT

On Japan’s sales tax, four out of 10 respondents said they oppose any tax reduction, whereas the remainder said there should be some form of cut, the survey showed.

Cutting the tax to help the public cope with rising prices has become a major issue ahead of upper house elections scheduled for July.

A 10% tax is applied to most goods and services. The tax for food and newspapers is 8%.

The largest opposition Constitutional Democratic Party of Japan has proposed cutting the 8% rate on food items to zero for one year. Prime Minister Shigeru Ishiba, head of the ruling Liberal Democratic Party, is opposed as sales tax revenue funds social security.

“Opposition parties are oblivious to what the sales tax is for. It is the tax that ought to be raised,” said an official at a metal and machinery maker.

With three out of 10 people aged 65 or above, Japan is the world’s most advanced ageing society.

A manager at a transportation company favoured a temporary, across-the-board sales tax cut “to fight inflation and stimulate consumption”.

About 63% of respondents said the government should not rely on bond issuance to fill revenue shortfall in the event of a sales tax cut, whereas 37% were in favour, the survey showed.

“The ageing of the population will be advancing further and social security costs will be getting bigger. We should not turn to tax cuts or government bond issuance lightly,” said a manager at a chemical company.

On the composition of the ruling coalition after the upper house elections, 32% of respondents favoured the current ruling bloc of the LDP and junior partner Komeito, while 20% wanted the Democratic Party for the People to be a third partner, the survey showed.

Last year, the LDP and Komeito lost their combined majority in the more powerful lower chamber, making it difficult for Ishiba to implement policies. The Democratic Party for the People quadrupled its lower house seats.

Reporting by Kiyoshi Takenaka; Editing by Christopher Cushing

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