Japan’s economy dodges recession in 1Q, sales tax decision eyed

TOKYO: Japan’s economy expanded at the fastest pace in a year in the first quarter, thanks in part to a leap year consumption boost, but analysts say the rebound was not strong enough to dispel concerns over a contraction in this quarter.

With private consumption making only a feeble recovery from last quarter’s slump, the data keeps alive market expectations that Prime Minister Shinzo Abe will delay a scheduled sales tax hike next year, analysts said.

The world’s third-largest economy expanded by an annualised 1.7 per cent in January-March, much more than a median market forecast for a 0.2 per cent increase and rebounding from a 1.7 per cent contraction in the previous quarter, Cabinet Office data showed on Wednesday.

Analysts had worried that the January-March period would not produce enough growth to avert recession – defined as two straight quarters of contraction – after stripping out the estimated boost from the leap year.

“Taking into account the effects of the extra day from the leap year, which pushed up the quarter-on-quarter growth rate by 0.3 percentage point, growth is not as strong as the headline number shows,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“The GDP data will likely press Abe to decide to delay a planned sales tax hike next year and to roll out additional fiscal stimulus worth at least 5 trillion yen (US$45.76 billion). I also expect the Bank of Japan to ease policy further in July given weak growth and tame inflation.”

Following the data, Koichi Hamada, an emeritus professor of economics at Yale University and key economic adviser to Abe, reiterated his opposition to the planned tax hike, which he told lawmakers would cause “quite a confusion”.

Chief Cabinet Secretary Yoshihide Suga told a news conference after the data that Japan is making steady progress towards beating deflation but private consumption continues to be weak with the effect of a sales tax hike in 2014 remaining. Private consumption, which makes up 60 per cent of GDP, rose 0.5 per cent, more than double the median market forecast, as households boosted spending on televisions, food and beverages, and recreation, the data showed. — Reuters

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