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Japanese Consumption Slowed Down 8% Post Sales Tax Hike

Consumers in Japan have been increasingly under pressure from the April consumption tax hike in the country, government data showed Friday, although the figures could offer encouragement to the Bank of Japan in its pursuit of higher inflation to help revive the economy.

Consumer prices rose 3.4 percent in May from a year earlier, the biggest increase in more than three decades, driven by higher energy costs as well as the effects of the April 1 consumption tax hike, which raised the rate to 8 percent from 5 percent.

Household spending, meanwhile, dropped 8.0 percent the same month, marking the sharpest fall in over three years in reaction to consumers bringing forward major purchases to beat the tax hike.

The core consumer price index, excluding volatile fresh food prices, stood at 103.4 against the 2010 base of 100, marking the 12th straight month of increase, the Ministry of Internal Affairs and Communications said.

The rise was the sharpest since April 1982 when the index rose 3.5 percent in the aftermath of the second global oil shock. The core consumer inflation rate exceeded the previous month’s 3.2 percent while almost matching projections by private-sector economists.

The BOJ said the consumption tax hike pushed up the May inflation rate by 2.0 percentage points.

The central bank aims to achieve a 2 percent inflation goal around 2015 without the direct effect of the tax increase, as part of efforts to beat nearly two decades of deflation in the country.

via Mainichi [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