Japan's Economy About to Tank?

FOR Izumi Yoshimura, an estate agent in Tokyo’s Ginza shopping district, the increase in the consumption tax on April 1st from 5% to 8% is a triple blow. It lifts her cost of living; she will need to rejig her firm’s computer systems at great expense; and her commissions are likely to fall along with sales of apartments. Adding to the downbeat mood this week, the Tankan survey from the Bank of Japan showed that many firms are concerned about the dampening effect of the tax hike. Retailers were particularly gloomy.

Consumption is expected to crater in the weeks following the rise. The country’s GDP could shrink by as much as 4.1% (annualised) in the second quarter, say economists. It was mainly the central bank’s radical loosening of monetary policy, which began a year ago, combined with a big dollop of fiscal spending, that has lifted Japan’s growth up to now. Further easing by the central bank is likely to follow the tax rise, but the expected economic dip will also heap more pressure on Mr Abe to press ahead with other growth-boosting measures. Thus far his government has largely failed to deliver on its promise of structural reforms.

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