Japan GDP Grows 5.9 Percent on Pre Tax Hike Shopping

Japan’s economy grew at a breakneck pace in the first three months of the year as consumers went on a massive shopping spree to avoid a planned sales tax increase.

Gross domestic product (GDP) grew at an annual rate of 5.9% in the first quarter, Japan’s Cabinet Office said Thursday. The expansion was much quicker than the 4% figure expected by economists, and a major rebound from disappointing growth in the fourth quarter of 2013.

On a quarterly basis, Japan’s GDP increased by 1.5%. Exports and business investment were particularly strong, and both measures topped analyst expectations.
Private consumption also provided a boost, driven by consumers that rushed to make big purchases before the tax hike took effect.

Japan’s consumption tax was increased to 8% in April in a bid to improve the country’s fiscal position. If needed, the government has the option to implement an additional increase to 10% by 2015.
Consumers responded in a big way — and all the extra shopping contributed to the strong first quarter numbers. But now that the sugar rush is over, economists expect Japan’s growth rate to return to earth in the second quarter.

“Looking ahead, 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 of Capital Economics.

via CNN

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza