Japan cuts outlook on sales tax hike
Print Edition
JAPAN’S government cut its overall economic assessment for the second straight month as weak consumption after a sales tax hike in April is causing companies to reduce production.
The government yesterday also cut its view on industrial output for the first time in five months as companies produced fewer goods and as inventories piled up due to weak demand.
The dour assessment follows the Bank of Japan’s tankan survey earlier this month, which showed that sentiment in the services sector worsened in the third quarter as the economy struggled to shake off the impact of the sales tax hike.
Economists say Japan will probably avoid a recession, but consistently weak consumer spending and manufacturing could fuel speculation Japanese Prime Minister Shinzo Abe will delay a second sales tax rise scheduled for next year.
“The Japanese economy is on a moderate recovery, but recently weakness can be seen,” the Cabinet Office said in its monthly economic report for October.
That was a downgrade from last month’s assessment, which said weakness was limited to just a few sectors.
The BOJ is preparing to roughly halve its 1 percent economic growth forecast for this fiscal year at a meeting on October 31 but stand by its prediction that inflation will hit its 2 percent target in the year that begins April 2015.
Many economists have already said the BOJ’s consumer price forecasts are too optimistic, and the Cabinet Office’s downgrade of the economy is likely to bolster their claims.
The government downgraded industrial production after it fell 1.9 percent in August as companies made fewer cars and less construction material due to flagging demand after the sales tax rose to 8 percent from 5 percent on April 1.
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