Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ News / World/  Japan growth trails forecasts as sales-tax rise looms
BackBack

Japan growth trails forecasts as sales-tax rise looms

Japan's GDP expanded an annualized 1% from the previous quarter

Business investment rose 1.3% from the previous quarter and consumer spending gained 0.5%. Exports rose 0.4%, while imports surged 3.5%. Photo: Reuters Premium
Business investment rose 1.3% from the previous quarter and consumer spending gained 0.5%. Exports rose 0.4%, while imports surged 3.5%. Photo: Reuters

Tokyo: Japan’s economy grew at less than half the forecast pace in the fourth quarter, underscoring risks to the nation’s recovery as a sales-tax increase looms in April.

Gross domestic product expanded an annualized 1% from the previous quarter, the Cabinet Office said on Monday in Tokyo, less than the median projection of 2.8% in a Bloomberg News survey of 37 economists where the lowest estimate was 1.1%.

While capital spending rose by the most in two years and consumption picked up, trade deficits from surging imports and limited gains in exports dragged on growth. Weaker-than-forecast growth may fuel speculation that the Bank of Japan will expand stimulus in coming months and add pressure on Prime Minister Shinzo Abe to flesh out his plans to make the nation more competitive.

“This weak export performance gives us a sense of risk that the Japanese economy may significantly stall after April," Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, told Bloomberg Television. Prime Minister Abe really needs to be quick in showing to the market that he can deliver reform.

Business investment rose 1.3% from the previous quarter and consumer spending gained 0.5%. Exports rose 0.4%, while imports surged 3.5%.

Investors are waiting for Abe to flesh out the so-called Third Arrow of Abenomics, in addition to fiscal and monetary stimulus, as he seeks to drive a sustained recovery from a 15-year deflationary malaise.

‘Unavoidable’ slump

Recent declines in consumer confidence and limited gains in exports have highlighted the risk that Japan’s recovery under Abenomics could fade after the levy increase.

“It’s unavoidable that the economy will slump in the April-June period due to a backlash from the front-loaded demand," said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.

The fourth straight quarterly expansion follows annualized growth of 1.1% in the previous three months. The economy is forecast to shrink an annualized 4.1% in the quarter starting April, when the sales tax will rise to 8% from 5%, according to a separate Bloomberg survey.

The yen gained 0.2% against the dollar as of 11:15 am in Tokyo, trading at 101.60. The Topix stock index rose 0.4%, paring its decline this year to about 9% after a gain of more than 50% in 2013.

The BOJ is forecast to leave its policy unchanged at a meeting ending tomorrow, according to all 34 economists in a separate Bloomberg survey. Twenty-five of those polled forecast the central bank will add to stimulus by the end of September.

Damping sentiment

“This is going to weigh on sentiment, but I don’t think it will shock the BOJ into taking any action tomorrow," said Izumi Devalier, a Japan economist at HSBC Holdings Plc in Hong Kong. “They’re not going to be inclined to move on something like a preliminary GDP report."

The BOJ is considering refraining from issuing a monetary-base forecast for 2015 to avoid signalling a commitment to its unprecedented easing for a specific time period, according to people with knowledge of the matter.

Devalier said that the private consumption number in the GDP report seemed weaker than other data such as automobile registrations would indicate, suggesting that it could later be revised up.

Vehicle sales increased in the five months through January, and housing starts grew for a 16th month in December—the longest rising streak since the period ended February 1994. As the same time, demand could be undermined by waning consumer confidence, which fell in January to the lowest level since Abe came to power in December 2012.

Inflation outlook

Accelerating price gains as the BOJ pushes for 2% inflation may also weigh on household finances. Base wages, which exclude overtime and bonus payments, fell in December for a 19th straight month.

“Abe has urged business and union leaders in a series of meetings to boost workers‘ salaries in spring wage negotiations. In an interview in December," Abe said he wanted wages to rise more than prices. He said on Monday it would be best if pay were to increase by 2% or 3%.

Labor unions at all of Japan’s automakers are seeking increases in base salaries and bonuses as companies including Toyota Motor Corp. and Honda Motor Co. forecast record profits this fiscal year. Bloomberg

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 17 Feb 2014, 09:13 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App