"Opponents will gain momentum to try to prevent raising the sales tax, while politicians who back it will reinforce their argument by pointing to positive consumer spending and price data."
- Hideo Kumano, executive chief economist at Dai-ichi Life
The world's third largest economy decelerated more than it was initially expected in the second quarter, due to a drop in business investment, undermining gains in both consumer and government spending that helped to reduce deflationary pressures. This also is clouding prospects for a planned hike in sales-tax, which was planned to help the nation rein in its enormous public debt. The Japanese economy expanded an annualized 2.6% in the three months through June, well below analysts' forecasts of a 3.6% growth and following a revised 3.8% annualized growth rate for the first quarter.
Still the performance over last six months is the strongest in three years, as well as a sharp turnaround from the last year's recession, which was already fifth in 15 years. Soon Japanese Prime Minister Shinzo Abe will announce whether he will go ahead with a planned doubling of the sales tax up to 10% in two stages or not. The latest economic performance is raising concerns about the burgeoning government debt, which already surpassed 1 quadrillion yen by the end of June, figure which is more than twice bigger the size of economy. It also means Japan is the most indebted country of any of its industrialized peers.
© Dukascopy Bank SA