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Real gross domestic product grew at an annualized 5.7 percent during the January-March period. The revised GDP growth figure, to be released in August, is expected to be lower due to revisions to consumption figures for single people, who boosted their spending during the first quarter.

Nonetheless, it is the first growth in four quarters and on the macroeconomic front, the economy is gradually recovering.

January-March growth was lower than expected, deflating economic expectations and dampening the sentiments of overseas investors. This will likely reduce pressure for a stronger yen.

With the government having acknowledged that the economy has bottomed out thanks to the help of external demand, it is natural that authorities intervened in currency markets when the yen strengthened beyond 124 to the dollar.

There is also a difference in the mid- to long-term growth potential of Japan and the U.S., and since Japan will probably maintain its “zero interest rate” policy for some time, it is doubtful the yen will continue to be bought. Intervention at the 124 yen line — seen as the break-even point for major exporters — is thus understandable.

Although the economy has seemingly bottomed out, this is due more to the support provided by exports to the U.S. and Asia thanks to the economic recovery in the U.S. rather than Japanese policies. We have so far been unable to see any specific policies to deal with the lack of final demand, which is the root of deflation.

The Finance Ministry is considering easing the inheritance and gift taxes. While I agree, it seems authorities are thinking of abolishing the current spouse deductions on income tax to finance the proposed cuts in the other levies.

Such a move would adversely affect the current Cabinet’s public support rate and elections, and it gives the impression that authorities are more concerned with securing tax revenues than revitalizing the economy.

The Tax Commission will submit its basic policy on tax reforms to Prime Minister Junichiro Koizumi on Friday, but this panel is reportedly seeking to raise taxes. Given such a clash of opinions, a swift decision by the prime minister is necessary.

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