Japan to Sink Funds into the Economy as Inflation Threatens Spending Power

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Japan to Sink Funds into the Economy as Inflation threatens Spending PowerThe Japanese government is racing against time to inject funds into the economy after a sudden decline in consumer spending in the month of February threatened to prolong the country’s economic slowdown.

Finance Minister Taro Aso indicated that the government will sink 40 percent of outlays for the 2015 fiscal year into the next quarter, between April and June, to curb inflation, according to Bloomberg,

The economy is expected to shrink by a quarter in the next three months as consumer spending lost momentum owing to a planned 3% sales tax increase.

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“We can’t be optimistic about the resilience of the economy after the sales-tax hike,” said Naoki Lizuka, a Tokyo-based economist with Citigroup Inc. “It’s possible the government will have to compile another fiscal stimulus package this year. We expect the Bank of Japan will add easing in June or July.”

Retail sales decreased as household spending dropped 2.5 percent in February; while retail sales grew at 3.6 percent, which was less than 4.4 percent growth in January, according to BBC. The consumer price index; which is adjusted for perishables and energy, surged 0.8 percent to its highest level in 16years.  Core inflation climbed 1.5 percent.

Unemployment rate declined to 3.6 percent, the lowest since Dec. 1997, while the number of jobs per applicant reached a record high in seven years.

“Labor markets continued to tighten in February,” said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong. “Slowly but surely, the recent labor market tightness is translating into wage growth,” she said in reference to large companies raising pay in the annual spring labor negotiations.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com