Weak growth adds to heated debate over Japan’s sales tax

THE JAPANESE economy grew by 0.6 per cent in the second quarter of this year, slipping below expectations and adding fuel to a debate over a controversial tax hike.

Analysts had expected a rise of around 0.9 per cent, which was seen in the previous quarter, but growth is still more robust than it was in the same quarter of 2012.

The release has added to an ongoing dispute over an increase in Japan’s consumption tax, which is currently five per cent. The government plans to raise the rate to eight per cent in April.

Both Prime Minister Shinzo Abe and central bank governor Haruhiko Kuroda back the increase in the sales tax, partly as a sign that the country intends to deal with its high debt, after years of borrowing.

Robert Wood of Berenberg said that the increase could be problematic for the country’s pace of expansion: “One of the first decisions that could put a break on the Abe fuelled surge in growth is a looming rise in the sales tax next April. With consumption the backbone of recent growth, that could pose challenges for Japan.”

Nomura added: “We believe investors could remain concerned with the feasibility of the tax hike as planned, and are therefore likely to become more risk-averse.”