Japan: Economy: July Data Makes Consumption Tax Decision Easier

British Embassy Tokyo

August 2013

Summary

Higher inflation, lower unemployment and stronger industrial production in July announced. These will all make it easier for the Government to justify increasing consumption tax from April 2014.

Detail

Core CPI (excluding fresh food) increased 0.7% in July compared to a year ago. This is an increase from 0.4% in June, and stronger than market expectations of 0.6%. Major contributors to the increase were energy and durable goods. The core CPI rate for the Tokyo region in August was 0.4%. This was in line with the expectations and slightly higher than last month (0.3%).  Tokyo CPI is often considered a leading indicator of inflation in Japan.

The monthly unemployment rate in July fell to 3.8% (3.9%). The female unemployment rate fell to 3.3% (3.5%) while that for men edged up to 4.2% (4.1%). Employment in the manufacturing, wholesale and retail sales and the medical/welfare industries increased, while the construction and agriculture industries reported a fall.

Real household expenditure increased 0.1% in July compared to the same period a year ago (but 0.9%, compared to last month). This was the first gain in three months and in line with the market expectations. Increased spending in recreational services such as travelling and durable goods supported the overall increase.

Industrial production increased 3.2% in July compared to June, which was moderately weaker than the market expectation of 3.8%. This is the strongest growth rate since June 2011. Electronic parts and the transportation equipment sector mainly contributed to the gain. Production in August and September is also expected to remain firm, according to a production forecast survey to manufacturers. 

Comment

A Government panel is currently hearing opinions from various interest groups on whether the planned consumption tax increase should go ahead (from 5% to 8% in April 2014). Most of the participants believe it should. However, some, including Yale Professor Hamada, one of those behind PM Abe’s economic policy, remain cautious. This data should support those who are calling for the tax rise to proceed on schedule.

Disclaimer

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