Japan’s Manufacturing Rose, Abe Plans Corporate Tax Cut
Unlike China, Japan‘s manufacturing activities rose in December. Flash PMI from HSBC came out at 52.1, up from 52 in November. A reading over 50 signals expansion.
Meanwhile, the Nikkei newspaper reported that Japan’s government is considering lowering the corporate tax rate by 2.5 percentage points starting next April.
Among the OECD countries, Japan has the second largest corporate tax rates with its corporations paying 35.6% of their profits. U.S., at 37%, of course has the highest rate. Japan’s neighbor, Korea, has 24.2%. Tax haven Ireland only charges 12.5%.
If the government doesn’t slash taxes, corporates will continue to flee Japan, according to CLSA‘s equity strategist Nicholas Smith. Smith said during our phone conversation last month that a corporate tax cut would be on Prime Minister Shinzo Abe‘s top policy agenda.
At the same time, about 70% of Japanese corporates do not pay any tax at all. Smith believed then that the Ministry of Finance would introduce a “size-based tax that every company would pay.” Corporates with high return on equity would end up paying less than the current rate and companies with low return on equity would start paying taxes. “Tax cuts are in neither guidance nor consensus numbers, which is positive for stocks,” wrote Smith in a November 6 report.
Neither news clip helped Japanese equities today. The Nikkei 225 slumped 2% as the Japanese yen rose to a five-week high of 117.37 per dollar. Toyota Motor (TM) fell 1.3%, Honda Motor (HMC) dropped 2.1%, Mitsubishi UFJ Financial (MTU) slumped 2.5%. Overnight in New York, the iShares MSCI Japan ETF (EWJ) was down 1.9%.