The economy appears to be on the recovery path, at least temporarily, thanks to the policy of the Abe administration. But optimism is not warranted ahead of the expected effects from the rise in the consumption tax, beginning in April, and the extra financial burden placed on households under the fiscal 2014 draft budget. Although the Abe administration's economic policy is based on the belief in "trickle-down" benefits, it is not certain whether this theory will work.
Since the Abe administration began about a year ago, Japan's gross domestic product has expanded steadily. While the Bank of Japan's quantitative monetary easing has led to a cheaper yen, thus helping export-oriented firms improve their performance, increased spending on public works projects has pinned down domestic demand. But the peak effect from public works spending has passed, and the consumption tax rate will rise from 5 percent to 8 percent in April. The tax is set to rise further to 10 percent from October 2015. Many private-sector economists predict that GDP will dip by an annualized 4 to 5 percent in the April-June quarter.
BOJ Gov. Haruhiko Kuroda says that although economic growth will temporarily slow down in that quarter, it will pick up in the July-September and October-December quarters.