Monitoring the Japanese Economy Post-Tax Hike

Monitoring the Japanese Economy Post-Tax Hike

Monitoring the Japanese Economy Post-Tax HikeThe Japanese economy released another set of data this week and confirmed what Bank of Japan Governor Haruhiko Kuroda was talking about when he mentioned that the sales tax increase from 5% to 8% earlier this year is causing economic fluctuations.

As expected, spending data showed declines following the April figures. Retail sales showed a 0.4% annualized drop, better than the estimated 1.9% decline and the previous 4.3% slide. Household spending slumped by 8.0% year-over-year, much worse than the estimated 1.9% decline and the previous 4.6% fall.


Japanese Economy and Inflation

A closer look at these spending figures suggest that the decline in wages has been mostly responsible for the sharp drop in household spending. On the other hand, the better than expected sales at large retailers in Japan has resulted to a stronger than expected retail sales figure for May.

Meanwhile, the rest of the jobs figures are looking up, with the jobless rate improving from 3.6% to 3.5% even with a healthy improvement in the country’s participation rate. Jobs-to-applicants ratio has also improved.

Inflation figures are also promising, as Tokyo reported a core CPI of 2.8% and the national-level CPI climbed from 3.2% to 3.4% last month. However, Kuroda has mentioned that inflationary pressures are likely to subside in the next few months, with core CPI likely to slide back to the 1% levels before the end of the year.

For now, the BOJ has no plans of adding stimulus just yet, as most officials claim that the Japanese economy remains resilient. It will be interesting to see how their data in the coming months changes, as the knee-jerk effects of the April sales tax hike are moderated. The Japanese yen is currently being supported by these relatively strong fundamentals and the BOJ’s claims that their previous easing efforts are just starting to kick in – a sign that they’re not looking to ease again in the meantime.

To contact the reporter of the story: James Brennan at