Shinzo Abe

Recession threatens Japan's tax rise

Opposition leader Shinzo Abe wants more stimulus and monetary easing

PUBLISHED : Tuesday, 11 December, 2012, 12:00am
UPDATED : Tuesday, 11 December, 2012, 3:25am


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Japan's economy sank into recession in the second and third quarters, fuelling opposition leader Shinzo Abe's calls for more stimulus and highlighting the risk that weak growth will derail a planned sales tax rise.

Gross domestic product shrank an annualised 3.5 per cent in the three months to September 30, the Cabinet Office's second estimate showed in Tokyo yesterday, matching a preliminary reading.

The government revised downwards the previous quarter's figure to a 0.1 per cent contraction, matching the textbook definition of a recession.

Abe, whose Liberal Democratic Party is leading in polls to win elections on Sunday, has called for more fiscal stimulus and "unlimited" monetary easing and has said economic conditions next year will determine whether the sales tax is raised.

Barclays and Citigroup forecast another contraction this quarter as exports fall and domestic demand stays weak.

"It's likely that Japan's economy hit bottom in the last quarter," Shuichi Obata, senior economist at Nomura Securities in Tokyo, said.

"The new government will aim to have solid growth by the middle of next year, as they have to decide whether to raise the sales tax or not."

Japanese recessions are officially defined by a government-charged panel that considers data beyond figures for GDP. Japan's current account surplus fell less than expected in October, separate data from the Finance Ministry showed.

The surplus on the current account, the widest measure of trade, was 376.9 billion yen (HK$35.4 billion), compared with 503.6 billion yen the previous month. Japanese manufacturers such as Sharp and Honda Motor are grappling with weaker earnings as a strong yen, slow European demand and anti-Japanese sentiment in China hurt exports.

Nissan Motor and Honda cut their profit forecasts for the year to March by about 20 per cent, citing a slump in China sales.

The sales tax bill raises the levy to 8 per cent in April 2014 and to 10 per cent in 2015, and a clause allows for implementation to be cancelled based on an assessment of economic conditions.

The last sales tax increase, in 1997, helped push the economy into a 20-month recession.