Sponsored by: Investment Center

Something new in your business?  Click here to submit your business press release

Chamber Corner | Main Street News | Job Hunt | Classifieds | Calendar | Illinois Lottery 

Japan first-quarter growth driven by spending before tax rise; exports dim outlook

Send a link to a friend  Share

[May 09, 2014]  By Tetsushi Kajimoto

TOKYO (Reuters) Japan's economy probably grew the most in a year in the January-March quarter as consumers rushed to spend before a sales-tax increase, a Reuters poll showed, but persistent weakness in external demand could pose a risk to growth ahead.

Analysts say exports could remain a drag on the economy in the current quarter while domestic demand takes a hit from the April 1 sales-tax hike, complicating policymakers' efforts to drive a durable economic recovery.

Although policymakers say the pullback in demand following the tax rise is so far within expectations, further weakness in exports could raise expectations of fresh central-bank stimulus sooner rather than later to support the economy.

"I expect the Bank of Japan will act in the summer or autumn to sustain price gains as upward pressure on prices from a weak yen will peter out from now on," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

"The BOJ's focus is primarily on prices, but it could act sooner if external demand fails to cushion the expected slump in consumption after April. That would pose a major downside risk to the Japanese economy."
 

Gross domestic product likely grew at an annualized pace of 4.2 percent in the first quarter, according to the median estimate in a Reuters poll of 27 economists. That would mark the sixth straight quarter of expansion by the world's third-largest economy.

It would also be the fastest expansion since 4.5 percent growth in the same quarter last year, after Prime Minister Shinzo Abe returned to power pledging to regalvanize the economy with aggressive fiscal and monetary stimulus.

The Cabinet Office will release the GDP data on Thursday, May 15, at 8:50 a.m. (2350 GMT on Wednesday).

Q1 CONSUMPTION, CAPEX STRONG

"Abenomics" helped Japan's economy grow faster than those of its Group of Seven peers in the first half of last year, but it lost momentum in the second half as exports, capital spending and private consumption disappointed.

On a quarter-on-quarter basis, the economy is expected to have grown 1.0 percent in January-March, accelerating from 0.2 percent growth in the previous quarter, the poll showed.

Private consumption, which makes up about 60 percent of the economy, is seen up 2.1 percent during the quarter. That would match a high last seen in the first quarter of 1997, just before a similar increase in the sales tax.

[to top of second column]

Capital spending - which has been a weak spot in the economic recovery - is forecast to have increased 2.1 percent, the most since it rose 7.9 percent in the final quarter of 2011 on post-disaster reconstruction.

But external demand is expected have shaved off 0.4 percentage point from quarterly growth, following a 0.5-percentage-point subtraction in the previous three months.

The negative contribution was caused by the Japan's hefty trade deficit, as a weaker yen has made imports more expensive and fuel imports have skyrocketed to compensate for the loss of nuclear power after the Fukushima catastrophe in 2011.

Japan's current account surplus probably halved to 305 billion yen ($3 billion) in March from the previous month, undermined by persisting trade deficits, the Reuters poll showed. The Ministry of Finance will release the current account data on Monday at 8:50 a.m. (2350 GMT Sunday).

Meanwhile, Bank of Japan data due on Wednesday at 8:50 a.m. (2350 GMT Tuesday) is likely to show that wholesale prices in April rose 4.0 percent from a year earlier and grew 2.8 percent from the prior month, in a sign of steady inflation.

(Reporting by Tetsushi Kajimoto; Editing by Chris Gallagher)
 

[© 2014 Thomson Reuters. All rights reserved.]

Copyright 2014 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

< Recent articles

Back to top