The annualized 2.2 percent growth of Japan's gross domestic product for the October-December period — the first rise in three quarters — may indicate that the negative impact of the consumption tax hike last April is easing. Consumer spending, which accounts for 60 percent of GDP, rose 0.3 percent from the previous three months for the second quarterly increase in a row. Still, the economy's upturn was far weaker than forecast by private-sector economists.
While exports grew 2.7 percent on the back of increased shipments to the United States and China, the pickup in personal consumption remains far from robust as net declines in wages continue with prices rising faster than pay raises. Although prevalent forecast points to the economy maintaining modest growth in the January-March quarter, a full-scale recovery will require a sharper increase in consumer spending.
In that respect, it is questionable whether the current policies taken by the administration of Prime Minister Shinzo Abe and the Bank of Japan match the realities of the nation's economy. After the consumption tax rate hike from 5 percent to 8 percent last April, the economy shrank for two consecutive quarters as consumer spending was battered by higher prices caused by the tax hike and the rising cost of imports due to the falling yen, as well a reactionary fall in demand after people rushed to buy ahead of the tax hike.