Japan’s first-quarter growth was the strongest in over two years, data showed Thursday, as the nation’s cash registers rang up big sales ahead of a consumption tax rise that threatens to stall activity in the coming months.
Millions of shoppers scooped up everything from cars and refrigerators to televisions and alcohol in a buying spree that drove the 1.5 percent expansion in gross domestic product for the three months to March.
That beat market expectations and a tepid 0.1 percent rise in the last quarter of 2013.
Japan’s latest growth figures were the strongest since mid-2011, when the world’s third-largest economy bounced back in the aftermath of a devastating quake-tsunami disaster.
But, as Tokyo works to conquer years of deflation, there are growing fears that shoppers will shun pricier goods due to the tax hike — seen as key to chopping Japan’s massive national debt.
That, in turn, would weigh on consumer spending and could derail a recovery in the wider economy.
“This is not normal and there will be a reaction to it,” said Takeshi Minami, an economist at Norinchukin Research Institute, referring to quarterly growth, which amounted to a sizzling 5.9 percent rise on an annualised basis.
“After this kind of rise, the fall back will not be small,” he added.
Sales taxes rose to 8.0 percent from 5.0 percent on April 1. Since then, Japanese auto sales dropped nearly 12 percent in April from a year ago, beer shipments fell by about one-fifth, and department stores have seen a sharp drop-off in customer traffic, underscoring concerns about slower spending.
On Thursday afternoon, fresh figures showed a deterioration in consumer confidence last month that marked another worrying sign for the current quarter.
“The economy will certainly contract in the second quarter of the year, as consumers rein in spending after the tax hike, and residential investment is set to plunge,” said Marcel Thieliant, a Japan economist for Capital Economics.
But “we remain confident that the recovery will resume in the second half of the year”, he added.
– Waiting for more –
The International Monetary Fund has cut back its expectations for the Japanese economy this year, and warned that Prime Minister Shinzo Abe’s drive to reverse years of tepid growth, dubbed Abenomics, was not complete.
Since sweeping elections in late 2012, Abe has pushed big government spending and central bank monetary easing as the solution to conquering years of falling prices, which has held back growth.
The move ushered in a plunge in the yen — giving a boost to exporters’ profitability — while the Nikkei 225 stock index soared 57 percent last year, its best annual run in more than four decades.
But questions remain about whether Abe’s programme helped ordinary people, who now face higher prices due to the tax rise, creeping signs of inflation, and lacklustre pay increases.
Some critics say Abe’s promise of reforms, including bringing more women into the workforce and embracing free trade deals, has been more talk than action so far.
“More than a year after the launch of ‘Abenomics’, structural reforms and deregulation proposed by Prime Minister Abe to spur economic growth remain largely undefined,” Fitch ratings agency said in a report this week.
“Any reversal in optimism surrounding Abenomics could result in a deterioration of market conditions,” it added.
Bank of Japan policymakers have also cut their economic growth expectations, with BoJ governor Haruhiko Kuroda saying he would “not hesitate” to unleash further monetary easing measures as the bank chases an inflation target seen as key to reversing deflation.
BoJ policymakers expect the economy to expand by 1.1 percent in the fiscal year to next March, down from an earlier 1.4 percent forecast.