Japan: Economy: July Data Makes Consumption Tax Decision Easier

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

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.

Countries: Japan
Topics: Legislation & Regulation
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