ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Economy

Will Japan's tax hike hurt? Government and economists disagree

Official outlook sees 1.2% growth in fiscal 2020, but outsiders say 0.5%

The Cabinet Office sees consumer spending increasing 1% in fiscal 2020, compared with private-sector forecasts averaging 0.3%.   © Reuters

TOKYO -- Japan's first official economic forecast for fiscal 2020 paints a significantly rosier picture than private-sector predictions as the government downplays concerns ahead of a consumption tax hike this October.

Real gross domestic product will increase by 1.2% in fiscal 2020, the Cabinet Office said Monday. It foresees improvements in employment and pay, as well as stable consumer spending and capital investment. The government forecast projects nominal growth at 2% given the effect a higher consumption tax would have on prices.

The fiscal 2019 forecast was downgraded to 0.9% in real terms and 1.7% in nominal terms. Most of the hit came from the continued trade war between the U.S. and China, with Japan's exports now seen increasing 0.5% instead of the previously forecast 3%.

The government is eager to keep the economy from cooling as it did after the last hike half a decade ago. It has planned aggressive stimulus measures to underpin domestic demand this autumn and beyond, though the private sector appears not to share its optimism.

Nongovernment economists expect real growth of about 0.5% in both fiscal 2019 and fiscal 2020, according to the monthly ESP Forecast by the Japan Center for Economic Research.

The discrepancy stems largely from differing outlooks on domestic demand. The Cabinet Office sees consumer spending increasing 0.9% this fiscal year and 1% in fiscal 2020. Private-sector forecasts average about 0.4% and 0.3%.

The government also expects capital investment to rise 1.9% in fiscal 2020, while the private-sector on average expects a 0.8% increase.

The government is likely hesitant to cast doubts over the economy ahead of the tax hike. Consumer spending plunged when Japan last raised the consumption tax rate to 8% from 5% back in April 2014. The government has prepared about 2.3 trillion yen ($21.2 billion) in measures to ease the blow this time around, including gift cards and customer rewards.

But with signs of cooling spending already evident, private-sector economists are less bullish. The consumer confidence index sank for a ninth straight month in June and is below where it was before the 2014 tax hike, partly because prices are increasing faster than wages.

"Economic fundamentals may already be weak," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

An expert at a Council on Economic and Fiscal Policy meeting on Monday said Japan may need to ready additional stimulus to boost spending.

The government and the ruling coalition will include further economic measures in the fiscal 2020 budget to help meet the 1.2% growth forecast. They will take such steps as bolstering spending on public works projects to offset the dip in demand following the 2020 Tokyo Olympics.

"We will deploy flexible macroeconomic policies without hesitation" if the economy shows signs of slowing, Japanese Prime Minister Shinzo Abe said at the meeting.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends April 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media