Business / Economy

Tax hike blurs economic outlook as indicators dip

Kyodo

An index of indicators used to predict future economic conditions fell in May for the fourth straight month May, with the first consumption tax hike in 17 years denting optimism, the government said Monday.

The index of leading indicators, which predicts economic developments in the coming few months, decreased 0.8 point from a month earlier to 105.7 against the 2010 base of 100, the Cabinet Office said in a preliminary report.

It was the first time that the index dropped for four months in a row since July 2012, when the eurozone sovereign debt crisis triggered a sharp appreciation of the yen, weighing on the profitability of Japanese exports, a key driver of economic growth.

For May, new housing starts plunged following the April 1 hike in consumption tax to 8 percent from 5 percent, pushing down the index of leading indicators, the office said.

The index of coincident indicators, such as industrial output, retail sales and new job offers, was flat at 111.1 in May from the previous month. In April, it slid at its quickest pace since the 6.7-point fall marked in March 2011 caused by the Great East Japan Earthquake.

The government kept its basic assessment of the coincident index intact, saying it indicates the economy is “leveling off.”

The index of lagging indicators, measuring recent economic performance, declined for the second consecutive month, down half a point at 117.7.

The economy grew for the sixth straight quarter through the opening quarter of this year, on the back of the “Abenomics” policy mix centering on aggressive monetary easing by the Bank of Japan and massive fiscal spending, analysts said.

But fears linger that the consumption tax hike, aimed at covering swelling social security costs from the graying of Japan’s population, could choke private spending, which accounts for around 60 percent of gross domestic product.

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