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Japan's quarterly growth disappoints ahead of sales tax hike | Japan's quarterly growth disappoints ahead of sales tax hike |
(about 2 hours later) | |
Japan's economy grew less than expected at the end of last year, countering forecasts it would see higher spending ahead of a sales tax increase in April. | |
Gross domestic product rose by 1% on an annualised basis in the three-month period to December, compared with market estimates for a 2.8% expansion. | |
This was due to weaker private consumption and capital spending, as well as lower export figures. | This was due to weaker private consumption and capital spending, as well as lower export figures. |
However, this was Japan's fourth straight quarterly expansion. | However, this was Japan's fourth straight quarterly expansion. |
The latest figures highlight questions about the sustainability of Japan's economic recovery, and whether the government's policy of 'Abenomics' is working. | The latest figures highlight questions about the sustainability of Japan's economic recovery, and whether the government's policy of 'Abenomics' is working. |
"The disappointing GDP result is a reflection of the limit of Abenomics," Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo said. | "The disappointing GDP result is a reflection of the limit of Abenomics," Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo said. |
"Fiscal stimulus and monetary stimulus can only do so much without the actual change in the competitiveness of Japanese economy. | "Fiscal stimulus and monetary stimulus can only do so much without the actual change in the competitiveness of Japanese economy. |
"Only when there is a real change in the competitiveness of the Japanese companies, and a positive change in the long term economic outlook will there be a real change in Japan's growth performance." | |
Trade deficit | Trade deficit |
Since taking office over a year ago, Prime Minister Shinzo Abe has implemented an aggressive stimulus programme aimed at weakening the value of the Japanese currency. | |
The hope was that a weaker currency would spur purchases of Japanese products such as cars, since they become cheaper to buy abroad. | The hope was that a weaker currency would spur purchases of Japanese products such as cars, since they become cheaper to buy abroad. |
The Japanese yen lost about 18% of its value against the US dollar last year as a result of his policies, but the boost to exports has been limited. | The Japanese yen lost about 18% of its value against the US dollar last year as a result of his policies, but the boost to exports has been limited. |
That is because Japan has also seen a surge in imports, mostly of fuel, to supply the country with power after its nuclear plants were mothballed following the 2011 Fukushima crisis. | |
This has caused the world's third-largest economy to log an increasingly large and persistent trade deficit. | This has caused the world's third-largest economy to log an increasingly large and persistent trade deficit. |
Sales tax rise | Sales tax rise |
Japan is also struggling to rein in one of the developed world's biggest public debts, which economists have warned could hurt the country's fiscal health in the long term. | |
To address this, Mr Abe pushed through legislation last year that will see the consumption tax rise to 8% from 5%. | To address this, Mr Abe pushed through legislation last year that will see the consumption tax rise to 8% from 5%. |
However, Japan's GDP is forecast to shrink in the April-to-June period because of the increase in sales tax, since consumers are expected to put off purchases as a result of the higher price tags. | |
"I am not so concerned about domestic demand given a buying rush ahead of a sales tax hike in April will play out more strongly in the current quarter," said Taro Saito, senior economist at NLI Research Institute. | "I am not so concerned about domestic demand given a buying rush ahead of a sales tax hike in April will play out more strongly in the current quarter," said Taro Saito, senior economist at NLI Research Institute. |
Mr Okubo, meanwhile, forecasts Japan will fall into a recession in 2015. | Mr Okubo, meanwhile, forecasts Japan will fall into a recession in 2015. |
"Private consumption is likely to tank following the tax rate hike. Both working household as well as pensioners will suffer negative income growth," he said. | "Private consumption is likely to tank following the tax rate hike. Both working household as well as pensioners will suffer negative income growth," he said. |
"Fiscal stimulus may keep Japan from falling into outright recession in 2014, but the sustained fiscal stimulus through public work will defeat the purpose of raising consumption tax." | "Fiscal stimulus may keep Japan from falling into outright recession in 2014, but the sustained fiscal stimulus through public work will defeat the purpose of raising consumption tax." |
Japan's stock market had a mixed reaction to the data, with the benchmark Nikkei 225 index rising about 0.4% in choppy trading. | Japan's stock market had a mixed reaction to the data, with the benchmark Nikkei 225 index rising about 0.4% in choppy trading. |