Japan suffers biggest economic slump since 2011 quake as tax hike bites
A sales tax hike last quarter drove Japan’s economy into its biggest contraction since the March 2011 earthquake and tsunami, Cabinet Office data showed on Wednesday, keeping policymakers under pressure to expand fiscal and monetary stimulus should recovery falter again.
Seeing the slump as temporary, however, the Bank of Japan remains publicly convinced the economy is on course for a moderate recovery and has no plans to expand stimulus any time soon.
The soft data, though, could compel the central bank into trimming its rosy fiscal year economic projections when it reviews them in October.
Economics Minister Akira Amari signaled the government’s readiness to compile an extra budget later this year should growth in the third-quarter stay weak, although any fiscal stimulus would probably not be big enough to have a major impact on the economy, given Japan’s dire government finances.
The second-quarter contraction was the biggest decline since the first quarter of 2011, when the devastating earthquake and tsunami in March disrupted factory production and chilled household spending.
Many analysts expect a pick-up in July-September as the tax hike impact fades, with some projecting an annualized expansion of around 3% to 5%. A tightening job market is gradually pushing up wages and big firms have boosted summer bonus payments
BOJ Governor Kuroda has repeatedly stated he would not be surprised to see a contraction in April-June economic activity, and that there was no need to offer additional stimulus as growth is set to rebound in July-September.
Government officials have already signaled privately that they are ready to compile an extra budget toward the year-end to shore up the economy, scraping leftover money from the previous fiscal year’s budget.
They remain silent on the possible size of the stimulus and when the budget would be compiled, all of which depends on economic performance this quarter.
Source: Reuters
