Japan’s economy remains weak, but it did better than expected in April, the latest data showed yesterday.
Factory output fell 3.5 percent in April from a year earlier and consumer spending edged lower, though both improved from the month before and better than most forecasts.
Earlier data showed the consumer price index fell 0.3 percent in April, for the second straight month of deflation. However, excluding both energy and volatile fresh foods, it rose 0.7 percent.
Though the latest data present a mixed picture, Japanese Prime Minister Shinzo Abe has won grudging support for a postponement of the next sales tax increase from a key ally, Japanese Finance Minister Taro Aso.
“It is one option to help support consumer spending,” Aso said of the likely delay.
Aso was obliged to at least try to push back — with Japan’s public debt at nearly 240 percent of its GDP, putting the nation’s accounts in order is an urgent priority — but those favoring a delay argue the recovery is too weak to endure a fresh hit to consumer spending from a tax increase.
They also contend that the tax increase could backfire if it causes such a downturn that government revenues actually contract.
In April, consumer spending fell 0.4 percent from a year earlier, though incomes rose 0.7 percent. Unemployment was flat at 3.2 percent.
Industrial output rose 0.3 percent from March, stronger than expected, in one sign that the latest dip in growth might be moderating, Marcel Thieliant of Capital Economics said, but he added that private investment remains weak.
The last time Japan raised its sales tax, to 8 percent from 5 percent in April 2014, the economy fell back into recession. Growth has been uneven since then and Abe opted to postpone the next increase to 10 percent, set for October last year, to April next year.
“The government probably wants to avoid delivering a hammer blow to a fragile economy without seeing solid improvement at the fundamental level,” CMC Markets analyst Margaret Yang (楊燕) said in a commentary.
By pushing back the tax increase, Japan risks having its credit downgraded, though the impact would be limited by the fact that almost all of its debt is owned by domestic investors or the central bank.
“Whichever policy decision we take, there will be a risk,” ruling Liberal Democratic Party Secretary-General Sadakazu Tanigaki said.
The latest plan calls for the tax increase to take place in October 2019. Abe reportedly rejected the idea of dissolving the lower house of parliament and holding a snap election next month, when Japan is due to hold a vote for the less powerful upper house.
Parliament was due to vote later yesterday on a no-confidence motion against Abe put forward by opposition parties, but the Liberal Democratic Party’s strong majority means they lack the votes to get it passed.
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