Japan’s economy probably grew the most in a year in the January-March quarter as consumers rushed to spend before a sales-tax increase, a Reuters poll showed, but persistent weakness in external demand could pose a risk to growth ahead.
Analysts say exports could remain a drag on the economy in the current quarter while domestic demand takes a hit from the April 1 sales-tax hike, complicating policymakers’ efforts to drive a durable economic recovery.
Although policymakers say the pullback in demand following the tax rise is so far within expectations, further weakness in exports could raise expectations of fresh central-bank stimulus sooner rather than later to support the economy.
“I expect the Bank of Japan will act in the summer or autumn to sustain price gains as upward pressure on prices from a weak yen will peter out from now on,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
“The BOJ’s focus is primarily on prices, but it could act sooner if external demand fails to cushion the expected slump in consumption after April. That would pose a major downside risk to the Japanese economy.”
Gross domestic product likely grew at an annualized pace of 4.2 percent in the first quarter, according to the median estimate in a Reuters poll of 27 economists. That would mark the sixth straight quarter of expansion by the world’s third-largest economy.