Japanese economy grows faster than expected on new imperial era holidays

An 10-day holiday for the new emperor boosted the Japanese economy. Photo: AFP / Archive

Japan's economy grew faster than expected in the second quarter, official data showed Friday, aided by celebrations to usher in a new imperial era.

Gross Domestic Product (GDP) of the world's third largest economy grew by 0,4% over the previous quarter, the Cabinet said, beating the average analyst forecast of 0,1%.

The third consecutive period of expansion will also bolster Prime Minister Shinzo Abe's determination to promote a controversial increase in sales taxes in October, despite warnings that this could weigh heavily on growth.

Consumers are rushing to shop before the rate rises from 8% to 10% on October 1, and this boost to consumption has also helped boost GDP, economists said.

An unprecedented 10 holiday for the enthronement of Emperor Naruhito, which ushered in a new imperial era in Japan, also boosted the numbers, analysts said.

However, trade friction between the US and China weighed on exports and corporate spending in some sectors, such as machinery, said Yuichiro Nagai, senior economist at Mizuho Securities.

"But investments in software, research and development and construction were good," he told AFP.

Nagai said a consumer rush to buy before the sales tax hike is likely to become even more pronounced in the July-September quarter, helping Japan record another quarter of growth.

And while the economy is likely to contract in October-December due to rising taxes, it should recover next year and avoid falling into a recession, Nagai said.

"There is uncertainty about where the trade war will go ... With the US presidential election coming next year, however, I believe the main scenario is that they will find a compromise plan" later this year, he said.

The last time Japan raised its sales tax on 2014, the result was a drop in consumption and the economy as a whole and some economists warned that now is not the time to raise the rate amid uncertainty about global trade and Brexit

But Tokyo has promised to continue the plan unless there is a crisis at the level of 2008's financial collapse and Abe has promised countermeasures to cushion the blow to the economy.

SMBC chief economist Nikko Securities Yoshimasa Maruyama said the Japanese economy is expected to expand further from July to September, but warned that it could fall into a moderate recession between October and December as the global economy slows down. .

"As autumn comes, discussions for an additional budget will begin and requests for additional monetary easing will be higher," he said in a report released before the GDP announcement.

But Naoya Oshikubo, senior economist at Sumitomo Mitsui Trust Asset Management, was not so bleak.

"In the future, central banks are expected to continue easing, and the Chinese government will likely announce fiscal measures, resulting in a global economic recovery, which should help Japan maintain its momentum," Oshikubo said in a report.

In addition to the planned tax hike, the impact of trade friction between Japan and South Korea could be an obstacle, he said.

"But both should be limited in their effects," he said, while affected products represent only a fraction of Japanese exports.

Source: AFP


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