Consumption tax hike projected to increase appeal of electronic money

Last month the national mint intensified production of ¥1 coins in anticipation of the consumption tax hike on April 1. The Ministry of Finance wants 26 million of them manufactured by the end of March, and then another 160 million after the start of the new fiscal year. Once the consumption tax goes up from 5 to 8 percent, retailers will need more small change.

With a 5 percent tax, it’s relatively easy for stores to limit their use of coins since they can set prices based on multiples of 5. Maybe it’s possible to do that with multiples of 8, too, but not right away, and many fear they will not have enough ¥1 coins on hand when the tax hike goes into effect. An employee of the nationwide ¥100 shop CanDo told Asahi Shimbun, “Altough we sometimes receive ¥1 coins in payment from customers, we don’t recycle them as change to other customers, but now we’re trying to hoard as many as possible.”

If the consumption tax increase is an inconvenience to retailers, it’s even more of a pain in the neck for the government, since it costs between ¥2 and ¥3 to make a ¥1 coin, which is 100 percent aluminum. It’s the first time the mint has produced ¥1 coins on anything approaching this scale in four years. It will also produce an extra 100 million ¥5 coins, just to be safe. The government doesn’t want to relive the small change panic that happened in 1989, when the 3 percent consumption tax was first introduced.

that it took the finance ministry three years to put into circulation the extra 7.5 billion ¥1 coins necessary to make the new tax workable. Then, when the consumption tax went up to 5 percent in 1997 the demand for ¥1 coins decreased. At present there are 39 billion ¥1 coins in circulation, which is 3 billion less than the peak number in circulation in 2002.

But the development that really started making small change obsolete was the introduction of electronic money in 2001 with the emergence of the Edy card system, which is now owned by the Internet mall Rakuten. According to the Bank of Japan, in 2012 electronic money was used for ¥2.5 trillion in transactions, which is three times the amount used in 2008. Understandably, the electronic money industry thinks the consumption tax hike will increase usage even more.

Edy, which is accepted at 370,000 retailers and vending machines nationwide, told Asahi that it is using the opportunity of the hike to increase consumer awareness for their system, and will offer bonus points for new users who sign up. NTT DoCoMo, which offers the iD electronic money system through wallet functions in mobile phones, now accepted at 514,000 points-of-sale (POS), says it is contracting with even more retailers to install electronic readers, as well as with parking lots and restaurants.

The biggest beneficiary may be EM systems run by transportation entities. Suica and Pasmo cards, each of which are usable at 240,000 POS, offer commuters and travelers a discount. People who buy tickets for train and bus rides will pay more since transport companies will round up fares to the nearest multiple of ¥10 after April 1, while EM users will pay the exact fare. For instance, a JR fare that now costs ¥450 will increase to ¥464 with the tax hike, and that is what EM users will pay. Ticket-buyers, however, will have to pay ¥470.

The mint isn’t the only institution working overtime to compensate for the tax hike. Japan Post is rushing to print ¥2 stamps to augment ¥50 postcards and ¥80 letter stamps. For the past 20 years, all postage has been in multiples of ¥10, so there was never a need for post offices to stock ¥1 coins.

But all this printing and minting will be short-lived if the consumption tax is hiked again, to 10 percent, in the fall of 2015, which is what the government is planning to do. In that case, the tax will actually be a multiple of 10, thus making it easy for everyone, especially cashiers who now dread all those elderly people wasting their time as they dig through their purses and pockets for exact change.

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