Govt, BOJ must tide over economy’s downturn in the wake of sales tax hike
The national economy’s higher-than-expected growth in the first three months of the year is due primarily to a last-minute surge in demand ahead of the three-percentage-point consumption tax hike to 8 percent in April.
To prevent business activities from stalling because of a slowdown of personal consumption in reaction to the tax hike, the government and the Bank of Japan must, without fail, make every possible effort to properly handle economic policy.
According to a report the Cabinet Office released Thursday, the nation’s gross domestic product during the January-March quarter climbed sharply at an inflation-adjusted annual rate of 5.9 percent, and 1.5 percent compared with the previous quarter.
The broad expansion in consumer spending served as a major driving force for the jump in GDP—the total value of goods and services produced across the country. Prior to the rise in the tax rate to 8 percent from April 1, there was a large increase in spending on durable goods such as automobiles and home appliances.
Corporate capital spending, another pillar of domestic demand, also registered a remarkable growth in the first three months of this year, up 4.9 percent from the previous quarter, the highest in about two years. The boost in corporate confidence in capital investment, with companies’ business performances helped by the economic tailwind, including the yen’s weakening, can safely be claimed as a factor favorable to putting the national economy on a full-fledged growth track led by the private sector.
It is feared, however, that the pace of growth may plunge, at least temporarily, after April because of the adverse impact of the consumption tax increase. It is imperative to minimize the economic pullback.
The government should make efforts to steadily implement a fiscal stimulus spending program worth ¥5.5 trillion that was incorporated into a supplementary budget for fiscal 2013.
Reliance on fiscal spending, however, should be limited. Swift recovery of private-sector demand, such as consumption, is of key importance.
Fall in exports worrying
Such economic indicators as sales at department stores and purchases of new cars logged negative month-on-month growth figures in April. Although some analysts say the shrinkage is within their expectations, there can of course be no room for undue optimism.
It is necessary to improve the employment and income environment for the populace to shore up domestic demand. The news in this connection is encouraging in that many businesses raised regular monthly pay in the spring by taking into account requests from the administration of Prime Minister Shinzo Abe to increase the wages of employees.
Whether the moves for higher wages will spread to employees of small and midsize companies, as well as part-timers and other nonregular workers, to ensure robust growth is a truly big challenge.
The aggregate of after-tax profits of companies listed on the First Section of the Tokyo Stock Exchange in the settlements of accounts for the year ended March 31 this year were double the figure for the previous year. Decisions by high-performance companies to continue to give back some of their profits in the form of higher wages and bonuses for employees will certainly help expand consumption, which will in turn lead to increased corporate profits, thus creating a driving force to realize a “virtuous economic cycle.”
It is also important for private enterprises to determine carefully what lines of business should be considered promising to accelerate their capital investment.
What is worrisome, however, is that the nation’s exports have yet to recover despite of the weakness of the yen.
Given that the growth of China and emerging economies in Asia has slowed down, the uncertainties of future prospects of demand from abroad have been deepening alarmingly.
It is time for Japan to more effectively use its assets for creatively manufacturing products, including the “one-only” skills that are particular to many small and midsize businesses and a mountain of patents major companies currently possess but have not used, so as to enhance this country’s global earning power.
(From The Yomiuri Shimbun, May 18, 2014)