Japan slows as sales tax increase looms

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br japan Bloomberg The Shibuya district of Tokyo buzzes on Sunday. Weaker-than-forecast growth in the fourth quarter of last year may put pressure on Prime Minister Shinzo Abe to detail his policies to make Japan more competitive, analysts say, but the Bank of Japan is not expected to ease policy today. Photo: Bloomberg

Tokyo - Japan’s economy grew at less than half the forecast pace in the fourth quarter of last year, underscoring risks to the recovery as a sales tax increase looms in April.

Gross domestic product (GDP) expanded an annualised 1 percent from the previous quarter, the Cabinet Office said in Tokyo yesterday, far below the median projection of 2.8 percent in a survey of 37 economists where the lowest estimate was 1.1 percent.

While capital spending rose by the most in two years and consumption picked up, trade deficits from surging imports and limited gains in exports dragged on the expansion. Weaker-than-forecast growth may fuel speculation that the Bank of Japan will expand stimulus in coming months and add pressure on Prime Minister Shinzo Abe to flesh out his policies to make the nation more competitive.

“This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April,” Takuji Okubo, the chief economist at Japan Macro Advisors in Tokyo, said. “Abe really needs to be quick in showing the market that he can deliver reform.”

Business investment rose 1.3 percent from the previous quarter and consumer spending gained 0.5 percent. Exports rose 0.4 percent, while imports surged 3.5 percent.

Investors are waiting for Abe to flesh out the so-called third arrow of Abenomics, in addition to fiscal and monetary stimulus, as he seeks to drive a sustained recovery from a 15-year deflationary malaise.

Recent declines in consumer confidence and limited gains in exports have highlighted the risk that Japan’s recovery under Abenomics could fade after the levy increase.

“It’s unavoidable that the economy will slump in the April to June period due to a backlash from the front-loaded demand,” Yoshimasa Maruyama, the chief economist at Itochu Economic Research Institute, said.

The fourth consecutive quarterly expansion followed annualised growth of 1.1 percent in the previous three months. The economy is forecast to shrink an annualised 4.1 percent in the quarter starting April, when the sales tax will rise to 8 percent from 5 percent, according to a separate survey.

The Bank of Japan is forecast to leave its policy unchanged at a meeting ending today, according to all 34 economists in a separate survey. Twenty-five of those polled forecast the bank would add to stimulus by the end of September.

“This is going to weigh on sentiment, but I don’t think it will shock the Bank of Japan into taking any action [today],” Izumi Devalier, a Japan economist at HSBC Holdings, said. “They’re not going to be inclined to move on something like a preliminary GDP report.”

The Bank of Japan was considering refraining from issuing a monetary-base forecast for next year to avoid signalling a commitment to its unprecedented easing for a specific time period, sources said.

Devalier said the private consumption number in the GDP report seemed weaker than other data would indicate, suggesting that it could later be revised up. Vehicle sales increased in the five months through January, and housing starts grew for a 16th month in December. At the same time, demand could be undermined by waning consumer confidence, which fell last month. – Bloomberg


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