Economic indicators have been sending mixed signals since the consumption tax hike to 8 percent from 5 percent in April, with consumer confidence and employment faring well and household spending and capital investment slumping.
Although the government and some private-sector economists remain confident the economy will overcome the trough in demand left by the last-minute spending binge before the tax hike and start recovering in the summer, there may be greater uncertainty if consumption and exports don’t bounce back as much as expected.
“With economic indicators showing wild swings before and after the tax hike, it is difficult to assess the actual state of the economy,” a senior official in the Cabinet Office said.
Consumers appear confident, with the consumer sentiment survey and the so-called economy watchers survey, which polls retail clerks, taxi drivers and other people on the front lines of the economy, both improving in June for the second month in a row. The Cabinet Office, which conducts both surveys, thus upgraded its basic assessment of consumer confidence.
Employment also continues to improve. The effective ratio of job openings to seekers in May rose for the 18th consecutive month to its highest since June 1992, when Japan was riding the remnants of the bubble economy that imploded around 1990.
On the other hand, average household expenditures in May fell 8.0 percent from the previous year in price-adjusted real terms, plummeting after a 4.6 percent drop in April.
As wage growth failed to keep pace with the inflation being stoked by the government, “recovery in consumer spending in May was weak,” said economist Daiki Takahashi of Dai-ichi Life Research Institute Inc.
And corporate capital investment, which was expected to cover the fall in personal consumption, has been tepid.
Core machinery orders, for example, a closely watched leading indicator of corporate capital spending, tumbled by a record 19.5 percent in May from the previous month after seasonal adjustment — the steepest decline ever — following a 9.1 percent fall in April.
“If exports continue to show sluggish growth, capital investment will be unlikely to gain momentum and the Japanese economy may have to go without a driver of recovery,” said Koya Miyamae, senior economist at SMBC Nikko Securities Inc.