Japan's consumers increased spending after tax hike

Note: This section contains information in English only.
Source: Dukascopy Bank SA
"Household spending was stronger than expected in March, pointing to considerably high growth in private consumption in the first quarter on pent-up demand ahead of the sales tax hike"
- Takeshi Minami, chief economist at Norinchukin Research Institute 

The Bank of Japan is upbeat about the economy and domestic demand in particular, saying the tax hike will not bring a lot of pain to the economy and will not diminish all efforts from Shinzo Abe and Haruhiko Kuroda to boost growth and inflation. Household spending accounts for more than half of the overall economic output. This is not the same proportion as in the United States, but still the world's third largest economy is highly dependent on consumers' willingness to spend. 

Despite upbeat data from Japan, the USD/JPY pair climbed to 102.48, as investors were waiting for the unemployment rate from the U.S. In the meantime, Japan's Statistics Bureau showed that spending soared 7.2% on a annual basis in March, accelerating from a 2.5% slump in February and beating market's forecasts for a 1.7% increase. It was the biggest increase since 1975 and exceeded a 5.8% gain that was recorded in March 1997, when the government raise the sales tax to 5% from 3%. Japan's households were spending more in March to make the most of the 5% tax on sales, knowing that as of April 1 the consumption tax would rise to 8%. The pullback in demand, however, may be within expectations so far, while the central bank will have to wait for consumption figures for April and May before making any judgement or bold decisions. Policymakers are expecting that improving labour market conditions, especially rising wages will take the sting out of the tax increase. 

© Dukascopy Bank SA

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