After recording steady growth under the ‘Abenomics’ policy in recent months, the Japanese economy experienced a large-scale contraction last month that reduced confidence in the country’s economic future.
The economic contraction was the largest on record since the March 2011 tsunami and earthquake, which caused widespread destruction throughout the country. The country’s policymakers face growing pressure to increase stimulus measures.
Japan’s latest sales tax came into effect on April 1st and has reduced spending across the country. Households have been most affected by the new taxes, with lower-than-normal domestic spending measured throughout Japan’s major urban centres.
As the world’s third-largest economy, Japan has experienced reasonable growth in recent months that has largely been reversed by the new taxes. From January of this year until March, Japan experienced average growth of 6.1 per cent.
The impressive growth figures, many economists claim, were the result of a massive spending spree by Japanese consumers eager to purchase soon-to-be-taxed items in advance of the new tax scheme.
From April through June, the Japanese economy shrunk by an annualised 6.8% — an incredibly troubling figure for the nation’s economists. Despite the data, the Bank of Japan believes that the downturn is only temporary in nature.
It has predicted that the Japanese economy is moving towards a moderate recovery, and that stimulus measures do not need to be expanded. Economists believe it may need to revise its projections as more data is released on Japan’s economic status.
Prime Minister Shinzo Abe is currently deciding whether or not to introduce further sales taxes to raise revenue, including a potential tax hike in October of 2015 which would take the 8% sales tax to 10 per cent.
While Japan’s economy continues to contract, the scale of the contraction is below the estimates provided by most economists. Japan’s 1.7% second quarter decline is slightly below the median 1.8% prediction released earlier this year by economists.
