Tue, Sep 10, 2013 - Page 15 News List

Japan’s growth clears way for tax hikes

POSITIVE SENTIMENT:Better-than-expected growth helped boost the Nikkei 225 index by 3 percent, as investors also cheered Tokyo’s winning bid to host the 2020 Olympics

AFP, TOKYO

Japan’s economy grew more than initially thought in the June quarter, revised data showed yesterday, in further evidence of an economic recovery which is likely to clear the way for a hike in the nation’s sales tax.

The growth figures, which come after a massive stimulus program that has also pushed down the value of the yen, showed a big jump in firms’ capital spending — a key indicator of business sentiment.

New investment was up 1.3 percent between April and June, reversing an initial estimate of a 0.1 percent decline.

The figures “show that Japan’s economic recovery is on the right track,” Nomura Securities strategist Hisao Matsuura said.

The boost to corporate capital spending could run in tandem with a rise in household spending and a strengthening labor market, he added.

Japan’s Cabinet Office put growth in the April to June quarter at 0.9 percent compared to the previous corresponding period, up from a preliminary reading of a 0.6 percent expansion.

The news helped send the benchmark Nikkei 225 index soaring nearly 3 percent at the open as investors also cheered Tokyo’s winning bid to host the 2020 Olympics.

At the close, Nikkei 225 index rose 344.42 points to 14,205.23, while the TOPIX index of all first-section shares finished 2.19 percent, or 25.18 points, higher at 1,173.00.

The economic impact of the Olympic Games is likely to be limited, but Tokyo’s weekend victory added to a wave of optimism over Japan’s prospects after many years in the doldrums.

“It’s good for the economy that people’s sentiment has turned positive,” said Takeshi Minami, an economist at Norinchukin Research Institute.

Traders said the Olympics would also give the market a psychological boost and help Japanese Prime Minister Shinzo Abe’s pro-spending economic program, dubbed “Abenomics.”

“The Nikkei will likely rise to 15,000 by the end of September on the back of renewed hopes for Abenomics,” Ichiyoshi Asset Management fund manager Mitsushige Akino said.

“The Olympics will likely regenerate interest in Japanese equities among foreign investors as it will make it easier for Abe to move forward with his growth strategies, and the implementation of a consumption tax hike and corporate tax cuts,” he added.

In yesterday’s GDP data, the government also boosted the annualized economic growth figure to 3.8 percent from an original estimate of 2.6 percent.

“The conditions are ripe for the government to go ahead with the sales tax hike,” Nomura’s Matsuura said.

Tokyo is considering whether to launch a series of sales tax hikes that many fear could derail a budding recovery in the world’s third-largest economy.

The revised GDP figures have been highlighted by Abe as key to his government’s decision on the plan, which could see Japan’s sales tax double to 10 percent by 2015.

While the hike is seen as crucial to bringing down a staggering national debt — proportionately the worst among industrialized nations at more than twice the size of the economy — some fear higher taxes will hit consumer demand and blunt any recovery.

Any negative impact from the tax rises could heap more pressure on the Bank of Japan to further loosen its monetary policy in a bid to support growth.

Last week, the central bank upgraded its assessment of the long-lumbering economy, saying a recovery was firmly under way.

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