Tokyo: For the second quarter in a row, Japan’s economy shrank after a sales-tax increase taking the steam out of Prime Minister Shinzo Abe’s bid to turn Japan into a global model of revival. Abe, who has sought to revive the world’s third-largest economy after two mostly sluggish decades, is set to announce this week that he will delay plans to raise the nation’s sales tax next year and call elections in December.
The prime minister hopes that delaying the tax increase, along with the Bank of Japan’s move on Oct. 31 to pump tens of billions of dollars of cash into the economy, will keep so-called Abenomics humming, said advisers.
But the growth figures released on Monday demonstrated the size of his challenge. Real gross domestic product fell 1.6% on an annualized basis in the July-September period, following a 7.3% contraction in the previous quarter. That means Japan met one definition of a recession: two consecutive quarters of contraction.
Indeed, after the release of the data, Yukio Edano, secretary-general of the main opposition Democratic Party of Japan, said, “The economic policy of the past two years may have been effective in pushing up share prices, but it was not in turning around the real economy. We can say with confidence that Abenomics has reached its limit.â€
The Nikkei Stock Average, which surged after the Bank of Japan’s move to a seven-year high, ended morning trading down 2.6% on the news.
The two negative quarters followed an increase in the nation’s sales tax to 8% on April 1 from 5%. That hit consumer spending and chilled the whole economy. One example: Private housing investment fell an annualized 24% in the July-September quarter, according to Monday’s data.
Abe’s advisers said last week that if the growth figure was weak, Abe would postpone by 18 months a plan to raise the sales tax further to 10% in October 2015, and they said he would call elections in December. Local media said on Monday that the prime minister would announce both moves on Tuesday and set Dec. 14 as the election date for parliament’s lower house, which chooses the prime minister.
Abe’s ruling Liberal Democratic Party enjoys an overwhelming majority in the lower house and is unlikely to lose it because opposition parties are weak.