- Takehiro Sato, a former Morgan Stanley economist
During the last couple of months the world's third largest economy was constantly posting disappointing fundamental data that raised concerns about economy's ability to withstand the upcoming tax hike in April. Last week a bunch of data releases, including household spending, unemployment rate, industrial production, retail sales and the key inflation eased some of the pressure on Abe.
Practically all of the indicators surprised markets to the upside, as analysts were lowering their expectations amid recent weakness. With retail sales expanding 4.4% in January, marking a sixth consecutive monthly gain, industrial output soared 4% over the same month and unemployment stood at the lowest level in six years, investors can decrease the level of frustration at the lack of progress of Abenomics. Additionally, a core measure of inflation soared 1.3% in January, marking eight straight monthly increase. The all-encompassing CPI, however, eased to 1.4% from 1.6% recorded in December. The data speaks volumes for central bank's efforts to boost growth and inflation following almost 15 years of stagnation and deflation.
A high level of employment and strong household spending can be a key to Shinzo Abe's success, as April's tax increase is most likely to have a harsher impact on the economy than officials are predicting.
© Dukascopy Bank SA