Is there a silver lining for Japan's dreadful confidence numbers?

Japanese PM Abe pushed through a consumption tax hike in April

Grim figures on the Japanese economy were released early this morning - the country’s cabinet office showed April's economic sentiment plunge to the lowest level in a year and a half.

The decline was massive - from March’s robust 57.9 to just 41.6 this month (with scores above and below 50 representing improvement and decline respectively).
The survey usually moves by a percentage point or two month to month, but crashed as the country's low sales tax was hiked by three points.

Sales of items like home appliances dropped a fifth last month - there was a bulge in demand during March as shoppers tried to get large purchases in early, and this effect made business slow considerably as the change came in. Researchers from Societe Generale note that household disposable income was showing weaker growth than in 1997, the last time Japan disastrously tried to raise its sales tax.
But there was a positive finding in the survey - Japanese firms became increasingly pessimistic about the economic outlook in the months ahead of the hike, but rebounded to become very narrowly optimistic during the month that the tax actually kicked in.

It’s not very surprising that business activity was crunched when the consumption tax rose. But business sentiment for the future is crucial - if the tax hike had a compounding and long-term effect on expectations, it could reduce business investment, hiring, orders and eventually pay packets. It’s only one month’s data, but the fact that it doesn’t yet appear to be dropping is a good sign.
As many analysts have pointed out, inflation expectations are the crux of Abenomics - the attempt to end Japan’s falling prices and put the country on a long-term trend of around two per cent inflation is the most important tenet of the plan. So far, the cabinet office thinks it's working relatively well.

As Societe Generale notes, the 1997 hike was a traumatic experience for Japan, widely blamed for stalling the economy. So it’s no surprise that consumers would react negatively, at least at the beginning - whether the effect continues will take several months to establish. Abe’s growth strategy to cushion the tax increase will be announced in June, and could help to push the outlook part of the index higher.