- Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co.
The Bank of Japan claimed the world's third largest economy is strong enough to withstand the tax hike. However, it seems that following a stronger-than-expected boost in consumption ahead of the tax increase, fundamentals begin to disappoint. The first worrying sign is the fact retail sales in the country sank at a record pace in April. A preliminary report from the METI showed sales at Japan's retailers declined 13.7% in April from a month earlier on a seasonally-adjusted basis, as the government lifted the consumption tax to 8% from 5%. The reading marks a high in records dating back to 2000, and even topping an 8.4% drop in the aftermath of the March 2011 earthquake. On a yearly basis sales sank 4.4%, after surging 11% in March. Analysts will be waiting for third-quarter data in order to get a real idea about the long-term economic outlook for the economy after the tax hike. Figures for the July to September quarter are expected to provide a better inside and will help the government to make a final decision, whether to proceed with additional burden in October 2015 or not. According to the latest projections, consumer spending will plunge 3.3% in the June quarter, while the real GDP will contract at the same pace.
Despite disappointing figures, the Yen climbed for a second straight day against the Dollar, as Treasury 10-year yields sank to a nine-month low relative to the similar instrument from the Japanese government.
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