Japanese household spending fell much more than expected and factory output remained weak in July after plunging in June, government data showed, suggesting that soft exports and a sales tax hike in April may drag on the economy longer than expected.
While the Bank of Japan is in no mood to expand monetary stimulus any time soon, the data undermines the BOJ’s rosy economic forecasts and will keep it under pressure to act if the economy fails to gather momentum, analysts say.
The soft readings may also fuel speculation that the government could delay a second sales tax increase scheduled for next year, or try to compile another fiscal stimulus package, which would further worsen Japan’s debt burden.
“Production and consumption are both stagnating, and the economy is clearly undershooting projections of the government and the BOJ,” said Taro Saito, senior economist at NLI Research Institute.
“The BOJ will be forced to cut its economic view sooner or later, although it is unlikely to move anytime soon as it argues for rising inflation.”