Japan’s Q1 growth hits two-year high

An employee helps customers pay for their purchases at a self-checkout counter at an Ikea store in Tokyo. Japan’s economic growth in the first three months of 2014 hit its fastest pace in more than two years, data showed yesterday.

AFP/Tokyo

Japan’s economic growth in the first three months of 2014 hit its fastest pace in more than two years, data showed yesterday, while analysts said a pick-up in consumer confidence indicated sentiment was improving despite the impact of a sales tax hike.

A surprise jump in capital spending powered the 1.6% expansion in the world’s number-three economy between January and March, slightly better than an initial estimate of 1.5%.

It also marked the best quarterly advance since a 2.6% rebound several months after the 2011 quake-tsunami disaster.

Cash registers across Japan rang up big sales ahead of the April 1 consumption tax rise, a move seen as crucial to paying down a massive public debt but which critics warn could throw a nascent recovery off track.

Millions of shoppers scooped up everything from cars and refrigerators to televisions and alcohol in a spending spree that resulted in a 6.7% annualised first-quarter expansion in the economy – a hypothetical figure that shows growth stretched over a full year.

However, consumers have since reined in their buying, with figures this month showing household spending down 13.3% in April while retail sales suffered a similar slump.

Industrial production also slowed, exacerbating fears about the impact of higher sales taxes and renewing calls for more monetary easing by the Bank of Japan.

But fresh consumer confidence figures yesterday afternoon showed that sentiment rose in May, the first improvement in six months and offering hope that domestic demand was holding up better than some had expected.

“The rebound in consumer confidence last month suggests that the gloom resulting from the sales tax hike has started to fade,” said Marcel Thieliant of Capital Economics.

Also yesterday, current account figures for April offered some good news for the tourism industry as foreign visitors spent more money than Japanese holidaymakers travelling overseas for the first time since 1970.

The number of visitors to Japan in April surged 33% to record 1.23mn as the country looks to boost arrivals ahead of the 2020 Tokyo Olympics.

Still, many economists think the BoJ will be forced to launch new measures later this year to counter a downturn.

That was highlighted last month by the International Monetary Fund which said “the current aggressive pace of monetary easing may need to be maintained for an extended period”.

The “BoJ should act quickly if actual or expected inflation stagnates or growth disappoints”, the Washington-based Fund said in its annual review on Japan’s economy.

Japan economic plan vows corporate tax reform

Reuters/Tokyo

An economic plan being prepared by Japan’s government commits it to “corporate tax reform,” but resistance from fiscal hawks prevented an outline released yesterday from specifying a cut in the tax rate.

Prime Minister Shinzo Abe says he wants to cut the corporate tax rate, among the highest in the world, to spur business activity – a pledge that is a focus for investors seeking to gauge how strong his policies will be for economic growth.  But the outline of his policy priorities indicated that the issue of corporate tax reform was still “pending” and under discussion by officials, who also need find ways to curb a public debt burden that, at more than twice the size of the economy, is the world’s heaviest.

Abe is expected to announce the economic policies, along with a detailed “growth strategy” of structural reforms, around June 27.  Global investors are keen to see what Abe will offer in this “third arrow” of long-term policies, meant to complement the massive monetary and fiscal stimulus that have started to pull the world’s third-biggest economy out of two decades of deflation and sluggish growth.

An early draft of the growth strategy, seen by Reuters last week, promised to overhaul corporate governance, promote technology and attract private investment but left many tough questions unanswered.

Similarly, many of the proposals in yesterday’s policy outline lacked details on how they would be funded or carried out.  “To stimulate private-sector investment and promote direct investment from abroad, we will press ahead with corporate tax reform,” the outline said.

Japan’s corporate tax rate is nearly 36% for large companies operating in Tokyo. Corporate leaders and investors have long called for a reduction to spur new investment and higher returns.

Private-sector members of the government’s top economic and fiscal council have proposed cutting the rate to 25% eventually to put it in line with international standards.

Abe has recently begun promising to cut the tax rate, but the policy outline does not specify this. The finance ministry and ruling party tax panel say any revenue lost in the tax rate cut should be offset by bringing in alternative revenues.