Japan’s GDP Contraction Validates Second Tax Hike Delay

Japan’s economy shrank more than initially reported in the third quarter on declines in business investment, data showed on Monday, surprising markets and backing premier Shinzo Abe’s recent decision to delay a second sales tax hike.

The hit from an April sales tax hike turned out to be bigger than expected, the revised gross domestic product data indicated, underscoring the challenges Abe and the Bank of Japan face in pulling the world’s third-largest economy sustainably out of deflation.

The revision to an annualized 1.9 percent contraction from a preliminary 1.6 percent fall confirmed Japan slipped into recession and confounded a Reuters poll projecting a 0.5 percent contraction.

 
Abe, who has called a snap election for Sunday, hopes voters will agree that his stimulus policies and delay in the planned second tax hike next year will revive a sputtering economy. Media polls predict a landslide victory for his coalition.

The “harsh evidence for Abenomics,” shows that “tame growth in wages in particular is likely to drag on private consumption and broader economic activity,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

via Reuters

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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