Sat, Mar 29, 2014 - Page 15 News List

Japan to speed up its spending


Japan will speed up deployment of government cash in coming months as a surprise drop in consumer spending last month triggered concern the nation’s long-awaited inflation is now damaging purchasing power.

Japanese Minister of Finance Taro Aso told reporters that data showing a slump in household expenditure two months before the first sales-tax increase since 1997 was a problem, and Japanese Prime Minister Shinzo Abe’s administration will pour 40 percent of outlays for the next fiscal year into the April-June quarter.

He had already pledged to fast-track stimulus spending.

Data yesterday also showed inflationary pressures are spreading even before the 3 percentage point sales-tax increase takes effect on Tuesday, as the price of durable goods soared the most since the early 1980s.

With officials striving to prevent a repeat of the recession that followed the rise in the levy 17 years ago, the central bank also may face calls for action.

“We can’t be optimistic about the resilience of the economy after the sales-tax hike,” said Naoki Iizuka, an economist at Citigroup Inc in Tokyo. “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.”


Household spending fell 2.5 percent last month from a year earlier, the first drop in six months, compared to the median estimate of economists for a 0.1 percent rise. Retail sales slowed, while a measure of inflation that strips out energy and fresh food increased the most since 1998.

While the data, which include a measure of demand for workers approaching a two-decade high, offer policymakers confidence their drive to end deflation is working, they also flash a warning sign.

Without wage gains, the danger is that the end of 15 years of sustained price declines will damage the world’s third-largest economy.

“Households are suffering from inflation as their incomes haven’t grown much,” Iizuka said. “People are purchasing durable goods to save money before the sales-tax hike, so they have to cut back on non-durables.”

The splurge on hard goods comes despite their prices rising last month at the fastest pace since April 1980.

Abe on Thursday said that the economy has reached a stage that cannot be called deflation.

Household spending on clothing and footwear fell 9.2 percent from a year earlier. Outlays on furniture and household goods soared 25.4 percent.


The unemployment rate fell to 3.6 percent, matching the lowest level since December 1997, and the number of jobs per applicant reached the highest level 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.

Aso said the government will front-load spending in the budget for the fiscal year that starts on Tuesday.

In addition to the June expenditure target, the government will aim to complete 60 percent of projects by the end of September, he said.

The sales-tax increase from 5 percent to 8 percent will boost the headline inflation figure by at least 2 percent points because about 70 percent of goods in the consumer price index are taxable, said Junko Nishioka, chief economist at Royal Bank of Scotland Group PLC in Tokyo.

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