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Japan Sales Tax Hike Could Slow Down Growth to 1 Percent

Japan’s economic growth will slow to 1.0 percent in fiscal 2014/15, less than half the pace expected this year, as a planned sales tax hike weighs temporarily on consumption, government forecasts showed.

In fiscal 2013/14, which began in April, Japan’s economy is forecast to expand 2.8 percent as an improving labor market bolsters consumer spending and as policies to end 15 years of deflation start to take hold, the cabinet office said.

That is an upgrade from the government’s previous forecast of 2.5 percent growth.

Prime Minister Shinzo Abe has to decide this later this year whether to carry out a plan that would raise the 5 percent sales tax to 8 percent from next April and then to 10 percent in October 2015.

Private consumption is expected to grow 0.5 percent in fiscal 2014/15, less than the 2.1 percent growth forecast for the current fiscal year, the cabinet office said.

The plan to raise the sales tax will add 0.2 percentage point to gross domestic product (GDP) in fiscal 2013/14 as shoppers rush to buy goods before the first tax hike, according to a cabinet office official.

via Reuters [1]

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Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
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