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Economy

Statistics go both ways on tax questions

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Bank of Japan Gov. Haruhiko Kuroda attends a news conference at BOJ headquarters in Tokyo on Nov. 19.   © Reuters

TOKYO -- Japanese Prime Minister Shinzo Abe and Bank of Japan Gov. Haruhiko Kuroda have jointly promoted "Abenomics," until now. In mid-November, the two expressed sharply differing views about the economy.

     Abe announced Nov. 18 he would delay a planned consumption tax hike because of weak consumer spending numbers. Kuroda has insisted the tax should be raised next October to 10% as planned. He stressed the resilience of consumer spending the day after Abe's remarks.

     The BOJ's economic outlook was shaken by the country's unexpected two straight quarters of negative growth -- a technical recession. Some BOJ officials have voiced doubts over the consumption picture, which can vary depending on the data.

     "Japan's economy has continued to recover moderately as a trend," the BOJ said in a Nov. 19 statement, maintaining its key assessment. The day before, Abe announced that he would delay hiking the sales tax to 10% and dissolve the lower house for a snap election. Another sales tax hike, the prime minister argued, could worsen the country's already faltering economy.

     The sales tax went from 5% to 8% in April.

     A BOJ official said the government and the central bank have differing views on consumer spending. In a series of debates over the sales tax, some experts called for a delay in the next hike, expressing concerns over its impact.

Banking on statistics

Abe in his Nov. 18 news conference emphasized that consumer spending fell more than 2% from a year earlier according to preliminary real gross domestic product for the July-September quarter. The prime minister added that further lifting the tax "could push down consumer spending again and make it even more difficult for the country to come out of deflation."

     There is a catch to the figures Abe cited. Generally, gross domestic product data comparisons look at data from the previous quarter. Consumer spending rose 1.5% from the previous quarter in the July-September period. Abe, however, cited year-on-year data, which indicated weak consumption.

     Conversely, Kuroda stressed the resilience of consumer spending at his Nov. 19 news conference. He noted that Japan's consumer spending has remained solid as a trend, and employment has increased significantly. In addition, base pay is up for the first time in many years, and nominal wages and employee income have also increased, he said. Kuroda appears confident consumer spending would not falter even if the sales tax were raised as planned, given the improved employment and income situations.

     Many BOJ officials hold upbeat views. Japan's consumer spending, they believe, has already bottomed out. They find evidence for their bullish position in sales statistics from stores. Retail sales were up 2.3% from a year earlier in September, rising for a third consecutive month since July. Given such a point of view, Abe's picture of consumer spending may appear "much weaker than it actually is."

     Then again, maybe not. Spending in households with two or more people is in the doldrums. This data, according to the government, dropped 5.6% on the year in September, marking the sixth straight month of decline. The household spending survey has a greater influence on GDP consumer spending figures than retail data. Some BOJ officials are doubtful the consumer spending data correctly reflects the actual situation.

     A variation in consumption statistics might have affected Abe's decision to delay the consumption tax hike. The government and BOJ need to join forces to rebuild the Japanese economy. Economic assessment will become an important starting point in hammering out adequate economic policies.

     The government and BOJ need to decide the best way to assess real consumption and unite to go forward.

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