While the Japanese government struck a more upbeat chord in its January economic report, measures of consumer confidence paint a grimmer picture of things further on, as a tax hike in April threatens to put the breaks on household spending.
The report, released on Friday, described the economy as “recovering at a moderate pace,” marking the first time in four months the government has opted to raise its overall assessment. In fact, the report has not used that optimistic language since January 2006.
The results come as consumers continue their rush to snap up everything from home appliances to automobiles before the sales tax rate increases to 8% from 5% on April 1.
The report acknowledged this trend, saying “private consumption is increasing, showing a last-minute rise in demand before a consumption tax increase.” This assessment also proved rosier than last month’s “private consumption is picking up.”
In particular, it was noted that new-car sales jumped 26.5% year on year by volume in December. In addition, there was a more positive description of corporate capital investment, which had been lagging, for the first time in four months.
Despite the good news, economists and businesses are increasingly worried that the pre-hike rush will be followed by a post-hike lull. These concerns were reinforced by a 1.2-point drop in the seasonally adjusted consumer confidence index in December from the month before to 41.3, as revealed in a Cabinet Office survey released Friday.
That report tracks households’ perceptions about income growth, employment, willingness to buy durable goods and overall livelihood six months in the future. It registered a drop in all those categories except employment.
Moreover, the government lowered its overall assessment of consumer sentiment for the first time in four months, describing it as appearing to be standing still. This apparently reflects concerns over the added burden the higher tax will place on consumers, who are already experiencing sluggish income growth.
The question is to what extent consumer spending will be able to keep driving economic recovery after April 1. The tax hike will certainly result in a temporary dip. Even so, with fiscal and monetary stimulus policies expected to soften the blow, those who foresee the economy getting derailed are still in the minority.
