One of the biggest discussions in the U.S. market in 2017—particularly in the fourth quarter—concerned corporate taxes. While the earnings growth that comes from the cut in corporate tax rates to 21% will play out in 2018 and beyond, we can look at how Japanese earnings responded to the lowering of corporate tax rates that came with Abenomics.
U.S. equity markets have been reacting to the ebb and flow of different corporate tax-related announcements, but we believe that non-Japanese investors might not even realize the magnitude of the corporate tax cuts that Japan has already experienced.
Over the Last 10 Years, Effective Tax Rates in Japan Have Fallen Approximately 10%
Japan Effective Corporate Tax Rates (FY 2007–2017)
Have Profits Responded to Lower Taxes in Japan?
This is the true question for an equity investor, as lower taxes are nice, but the investment decision focuses on the profit response.
There Seems to Be an “Abenomics Response” to Both Pre-Tax and After-Tax Income