The nation's economy has escaped a back-to-back quarterly decline, as shown by the preliminary data for the January-March period — which has been closely watched as a possible clue to whether Prime Minister Shinzo Abe will go ahead with the consumption tax hike in April 2017 as planned. Abe's assessment for his tax decision aside, the GDP figures seem to testify to the mixed state of the economy, with signs for the months ahead looking hardly promising.
The GDP grew an annualized 1.7 percent from the previous quarter in real terms — on the heels of a revised 1.7 percent fall in the October-December period. Although the economy grew faster than the average private-sector forecast, a large part of the growth was attributed to the leap year effect of this February having one extra day. The 0.5 percent rise in personal consumption was not strong enough to offset the 0.9 percent decline in the previous quarter, while the 1.4 percent fall in capital investments, compared with the 0.24 percent rise in the October-December period, appeared to reflect the growing hesitancy of Japanese businesses to invest in the face of growing uncertainties over global growth.
Whether the latest GDP figures are encouraging enough for Abe to honor his tax hike commitment, or so discouraging as to prompt him to decide once again to postpone the hike, they appear to be yet another indication of the fragility of Japan's economic growth. This fragility in turn continues to put into doubt whether the prime minister's trademark economic policy, now in its fourth year, is working as intended. Growth has been uneven and less than robust since the April 2014 consumption tax hike dampened consumer spending. Even the Bank of Japan's move into negative interest rates in February — after three years of massive monetary stimulus under Gov. Haruhiko Kuroda — appears to have provided little fresh impetus to boost bank lending, though it reportedly prompted homeowners to refinance their housing loans at the lower rates.