A reality check seemed to hit the sunny momentum that the Japanese economy has been dressed up with these days under Prime Minister Shinzo Abe’s aggressive push to finally rid Japan of its chronic deflation, as numbers reported by the Cabinet Office show that the nation’s economic growth was slower than the 3.6 percent that was forecasted for the second quarter. This now gives Abe a bit more pressure as he mulls the planned sales tax increase.
Japan’s gross domestic product (GDP) is still on the rise, posting an annualized growth of 2.6 percent, showing an increase of 3.8 percent from the previous quarter, this according to numbers released by the Cabinet Office in Tokyo today. The estimate of economists and industry experts was looking at a 3.6 percent increase, but this was not the case. The numbers released today may serve as fuel for the calls from adviser Etsuro Honda and other tax-plan skeptics for the prime minister to consider more aggressive alternatives to the planned two-step consumption tax increase in April 2014. Abe had earlier announced that he will make his decision after seeing all the GDP data due on Sept. 9. His decision will be a key indicator to how any blow to Japan’s steady growth will impact the world’s third-largest economy. “Weaker growth in the second quarter would support arguments” for delaying or reducing the size of any tax increase, said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo.
Abe is bent on putting Japan on a path of sustainable growth with his “Abenomics”, through aggressive monetary easing and fiscal stimulus. He has also laid down an economic growth strategy that wants to strip away regulation to provide a better environment where Japanese businesses can become competitive. To date, Abenomics has been responsible for weakening the yen, with Japanese export-driven industries benefiting. The levy on consumption is set to be increased to 8 percent in April from the current 5 percent, followed by another increase to 10 percent in October 2015. A sales-tax law enacted last year gives Abe the power to postpone the increases if he decides that the economy will be unable to take the brunt of that austerity measure. Bank of Japan Governor Haruhiko Kuroda, one of Abe’s handpicked men for Abenomics, said last week that a delay in the nation’s planned consumption-tax increase would be a negative thing. He is of the opinion that “ending deflation and raising the sales tax are achievable at the same time.”