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Tax hike slashes household demand for bank loan in April-June

July 16, 2014

Demand for bank loans among Japanese households weakened at the fastest pace on record in the three months through June, dragged down by the April consumption tax hike, the Bank of Japan said Thursday.

The index for the central bank's survey of senior loan officers at large Japanese banks slid to minus 10 from the previous quarter's plus 20, falling at the sharpest pace since the BOJ began the polling in April 2000.

The index was the lowest since January 2010, when it stood at minus 11.

The diffusion index represents the percentage of lenders reporting stronger loan demand minus the percentage reporting weaker demand.

The government raised the country's consumption tax rate to 8 percent from 5 percent on April 1 amid fears it would slow household spending and business investment.

The survey also showed that loan demand among companies remained flat, with the index standing at plus 5, apparently reflecting their active capital spending, as well as mergers and acquisitions.

The results reinforced the view that consumers had front-loaded their loan demand, such as for purchasing homes and cars, ahead of the tax hike, and that such a move had caused the subsequent decline.

Analysts as well as the BOJ have said the scale of such last-minute buying was bigger than before the previous sales tax hike in April 1997.

Breaking down the categories, household demand for housing loans fell to minus 17 from plus 14, while that for consumer loans dropped to plus 2 from 15.

Down the road, however, the index for overall household loan demand is expected to improve to plus 2 over the next three months through September, indicating the impact from the tax rise is subsiding.

The BOJ surveyed a total of 50 domestic banks and shinkin cooperative banks from June 10 to July 8.

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Source: Japan Economic Newswire

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