Japanese Household Spending Slumps 5.9%; Cries for More Monetary Stimulus

Courtesy of Mish.

Consumer spending in Japan slumped in June because of a tax hike pushed through by Prime Minister Shinzo Abe. Economists claimed it would be temporary and spending would quickly recover thanks to inflation.

Let’s take a look at what actually happened.

Japanese Household Spending Slumps 5.9%

Yahoo!Finance reports Japan Household Spending Slumps, Output Flat as Tax Pain Persists

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.

Household spending fell 5.9 percent in July from a year earlier, nearly double the drop forecast in a Reuters poll, as the higher levy and bad weather kept consumers at home instead of going out shopping.

Weak exports left companies with a huge pile of inventories, forcing them to continue cutting back on factory output, separate data showed.

Industrial output rose 0.2 percent in July, much less than a 1.0 percent increase projected in a Reuters poll, data by the Ministry of Economy, Industry and Trade showed. That was a tepid rebound from a 3.4 percent fall in June, the fastest drop since the March 2011 earthquake.

Japan’s economy shrank at an annualized 6.8 percent in the second quarter from the previous three months, more than erasing the 6.1 percent first-quarter surge in the run-up to the sales tax hike.

Analysts generally expect Abe to approve another tax hike in December, but that decision promises to be politically divisive, coming just as the government hammers out details of a promised corporate tax cut.

Amusing Details

The Financial Times has some amusing details in Japanese Economy Flounders After Sales Tax Rise

Consumer prices rose 3.4 per cent in July compared with a year earlier, including the added tax. Stripping out the tax effect as well as the impact of volatile fresh-food prices – the formula favoured by the Bank of Japan – showed underlying inflation was 1.3 per cent, a level unchanged from June.

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