The steep contraction of Japan’s economy over the April-June period following sharp growth in the previous quarter — before the consumption tax hike — may have been within the range of expectations. But policymakers should not take a strong rebound in the July-September period for granted as the weakness in consumer spending comes amid a net decline in people’s disposable income due to the tax hike and rising prices induced by the weak yen.

The nation’s April-June gross domestic product fell an annualized 6.8 percent in real terms from the previous quarter, when the GDP expanded 6.1 percent. The fall in the April-June period was the sharpest since the Japanese economy was hit by the March 2011 Great East Japan Earthquake.

Because GDP grew rapidly in the January-March period as consumers rushed to buy ahead of the 3 percentage point hike in the consumption tax rate in April, it was widely anticipated that the economy would shrink in the following quarter.

The question is whether the negative figures in the April-June period will be a temporary setback that paves the way for a steady recovery in subsequent months.

A major worrying sign is the 5 percent decline in consumer spending, which accounts for about 60 percent of the nation’s GDP. The first decline in personal consumption in seven quarters — led by the slump in sales of consumer durables such as cars and electronic products — was the worst fall since comparable data became available in 1994 and was far sharper than the 3.5 percent decline in the quarter following the previous consumption tax hike in April 1997.

The problem this time is that in addition to the tax hike, the weak yen and high cost of energy imports have pushed up prices and, despite wage hikes on the back of improved earnings of major firms, people’s net income has declined. The year-on-year fall in the net income of salaried workers has hit a 3 percent-plus range for three months in a row since April.

True, the labor market has improved with the continuing upturn in the economy under the Abe administration, with the ratio of job offers to job seekers hitting a 22-year high of 1.10 in June. But businesses continue to try to fill their manpower needs by hiring irregular workers such as part-timers, with new hires of regular full-time employees remaining low.

Prime Minister Shinzo Abe’s economic policies have placed a clear emphasis on helping improve the performance of big businesses — perhaps in the belief that their better earnings will translate into better pay for workers and benefit the whole economy. The Bank of Japan’s massive monetary operation since his return to office has led to a sharp fall in the yen against the dollar and a rapid recovery in long-dormant share prices. While going ahead with the first hike in the consumption tax in 17 years, the Abe administration has introduced tax cuts for businesses and is seeking to start substantially lowering the effective corporate tax rates beginning in fiscal 2015.

Last year, many of the nation’s top-notch firms — including export-oriented large manufacturers — reported sharply improved earnings due in part to the yen’s fall. On the other hand, the higher costs of imports due to the weak yen weigh heavily on households, and small and medium-size firms.

The government needs to closely examine whether the slump in consumer spending is a temporary falloff from the January-March boom or reflects the Abe administration’s policy failure, and to take appropriate remedies if necessary.

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