"The question for BoJ policy is now whether governor [Haruhiko] Kuroda will support the government by adding easing to counter the expected fiscal drag at the beginning of next year"
-Miwako Nakamura, analyst at JPMorgan
The world's third largest economy expanded at a significantly faster pace in the second quarter than it was projected earlier, adding to hopes of an economic recovery and increasing chances Shinzo Abe will press ahead with a contentious sales tax hike. Figures from the Cabinet Office showed Japan's gross domestic product expanded 0.9% during the period, translating into an annualizes growth of 3.8%. This figure is 0.3% stronger than the previous estimate, while the official projection of the first-quarter growth was also marked higher, hitting the annualised rate of 4.1%, from 3.8% expected earlier. These figures are revamping confidence in Abenomics, policy based on three pillars- increased fiscal spending, structural reforms and rapid monetary easing. So far the set of measures has already helped to lift consumer prices 0.7% in July, while Japanese exporters benefited a lot from the increase in monetary supply as domestic currency lost almost 20% of its value against the greenback this year alone.
The better-than-expected figures come also at a time when the Prime Minister Shinzo Abe is considering raising the rate of sales tax, or the so-called consumption tax. With some of advisers urging to delay the possible increase in order not to jeopardize the economic revival, upbeat fundamentals may play the decisive role in the beginning of October, when Abe will decide whether to allow the tax to rise from current 5% to 8% next April.
© Dukascopy Bank SA