In Japan, the world’s third-largest economy, the gross domestic product grew at a rate of 1.7%: a better result than expected, coming after high government spending.
This marks a rebound from the past quarter, but the pressure for more economic reforms is still there. During the last three months of 2015, Japan’s economy shrunk, so the expansion in the first quarter helped the country avoid recession. The past four quarters have certainly been volatile, with Japan alternating between reduction and growth.
What Bank of Japan does?
Negative interest rates were introduced by the Bank of Japan in January to stimulate the economy.
“One of the lessons over the past year is that monetary policy isn’t as effective as it was in the past and might have reached some limits,” said Martin Schulz from Fujitsu Research Institute. “So what we will probably see this year is that the Bank of Japan will keep buying government bonds, and the government will probably start to spend even more than it did before.”
Delay sales tax?
Analysts continue to show concern over consumer spending, which makes up approximately 60% of the economic growth. The surprisingly strong results between January and March were attributed partially to an additional day in 2017, thanks to it being a leap year.
There are concerns that consumer spending may suffer a significant decline if Prime Minister Shinzo Abe goes ahead with increasing the country’s sales tax from the current 8% to 10%. Japan’s Nikkei newspaper reported that Mr. Abe planned to postpone the sales tax increase, and that he would announce his final decision after the G7 meeting.
Tokyo’s reform package kicked off in 2012 and was dubbed Abenomics. It is built around three arrows:
The monetary arrow – expanding the money supply to combat deflation.
The fiscal arrow – increasing government spending to stimulate demand in the economy.
The structural arrow – structural reforms to increase the productiveness and competitiveness of the economy.
For years, the country’s government has been desperately trying to push consumer spending and boost the stagnant economy. However, so far, Abenomics has been unable to incite economic growth.
What do you think about the state of the Japanese economy? Leave your opinion in the comments below and, for more economic updates, look to our posts about the secret of interest rates and the reasons behind climbing retail sales.