Tokyo - Japan’s economy expanded less than initially estimated in the fourth quarter of last year and the current account deficit widened to a record in January, highlighting risks to Prime Minister Shinzo Abe’s reforms as a sales tax increase looms.
Gross domestic product grew an annualised 0.7 percent from the previous quarter, the Cabinet Office said in Tokyo yesterday, less than a preliminary estimate of 1 percent and a 0.9 percent median forecast in a survey of 20 economists.
The current account deficit widened to ¥1.59 trillion (R160 billion) in January, a record in data going back to 1985, the Finance Ministry said.
While growth is set to surge this quarter before the bump in the sales levy next month, a sentiment survey released yesterday highlighted expectations for a sharp pullback when businesses and consumers face the higher burden.
Abe is due to detail growth measures in June to sustain momentum, while economists forecast the Bank of Japan (BoJ) will add to unprecedented monetary easing to keep the third-biggest economy on track for a 2 percent inflation target.
“Capital spending remains weak and exports are not coming back to strengthen the recovery, and without support in these areas, Japan’s economy is going to contract significantly in the second quarter,” said Yoshimasa Maruyama, the chief economist at Itochu in Tokyo. “The negative effect from the sales tax rise could be worse than the BoJ and the government expect.”
The Topix share index fell for the first time in five days yesterday after growth missed estimates, closing down 0.8 percent. The yen traded at ¥103.15 to the dollar at 3.11pm in Tokyo yesterday, up 0.1 percent.
Business investment rose 0.8 percent quarter on quarter, revised down from a preliminary 1.3 percent increase, yesterday’s data showed. Consumer spending climbed 0.4 percent, less than an initial estimate of a 0.5 percent gain.
Abe jump-started the economy last year with reflationary policies dubbed Abenomics. Record easing by the BoJ helped to push the yen down 18 percent against the dollar last year, boosting corporate profits and fuelling economic growth. The government approved a ¥5.5 trillion extra budget in December last year to offset the higher sales levy, which will rise to 8 percent next month from 5 percent now.
Companies and consumers have rushed to make purchases before April, with industrial production in January rising the most since June 2011 and retail sales gaining at the fastest pace since April 2012.
Businesses are bracing for a drop in economic activity after the sales tax rise, according to a survey released yesterday by the Cabinet Office.
Economic expectations of people such as taxi drivers, supermarket managers and restaurant workers fell last month by the most since March 2011, when the economy was struck by a record earthquake and tsunami, the Economy Watchers survey showed.
The expectations index fell to 40 from 49 in January, reaching the lowest since April 2011 and erasing all the improvement made since Abe took office in December 2012.
The BoJ, which concludes a two-day board meeting today, will keep its main policy target of expanding the monetary base at a pace of ¥60 trillion to ¥70 trillion a year, according to 33 of 34 economists in a survey. – Bloomberg