Japan Revises Up Q1 Growth, Cooling Stimulus Hopes

June 08,2016
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(Photo by Yuta Shino/Reuters)

(AFP)--Japan's economy expanded at a slightly faster pace than first thought, revised figures showed Wednesday, knocking hopes that the central bank will unleash fresh stimulus this month.

The data were unlikely to inspire renewed faith in Prime Minister's Shinzo Abe's faltering growth policies, after Tokyo last week said it would delay a tax hike to avoid damaging Japan's fragile recovery.

Gross domestic product expanded by 0.5% in the first quarter -- or 1.9% at an annualised rate -- up from a preliminary reading of 0.4% given last month.

The world's number three economy contracted in the final quarter of 2015.

The yen strengthened in response to the figures, which were likely to cool expectations that Bank of Japan will unveil fresh policy moves at a meeting next week.

In currency trading, the dollar was at 106.86 yen, down from 107.57 yen in US trading.

Wednesday's finalised figures, which matched market forecasts, come a week after Abe said he would delay a sales tax hike that threatened to derail the country's turnaround.

Under his signature policy blitz, Abe has sought to boost the lumbering economy with a combination of massive monetary easing, fiscal spending and structural reforms.

But the decision to delay the tax hike drew a warning from credit rating agency Fitch, which said it would "undermine the credibility" of Japan's commitment to paying down one the world's biggest national debts.

Japan's conservative premier has repeatedly said he would follow through on the levy hike, planned for 2017, after it was already delayed once.

But last week he said raising the tariff to 10% from eight percent would be pushed back by more than two years to late 2019, when Abe will likely no longer be in office.

One step further

Japan's last sales tax rise in April 2014 was blamed for pushing the country into a brief recession. There were widespread fears another hike would hammer the economy by taking a bite out of consumer spending.

Critics say it is crucial to shrink a debt mountain that is more than twice the size of the economy, as social welfare costs balloon in the ageing nation.

Abe insisted delaying the tax hike would give Tokyo breathing room to take his growth programme "one step further".

His plans appeared to work at first, as they sharply weakened the yen -- a plus for exporters' profitability -- and sparked a stock market rally.

But the economy is still struggling to mount a firm recovery more than three years later, and a resurgent yen is threatening Japan Inc's bottom line.

"One notable thing in the economy is the rising yen, which has taken a big toll on companies," said Taro Saito, senior economist at NLI Research Institute.

The Japanese leader -- who swept to power in late 2012 on a pledge to kick-start growth -- is expected to announce a fresh spending package within several months.

The top-selling Yomiuri newspaper has said the stimulus could reach 10 trillion yen ($93 billion).

Japan holds upper house parliamentary elections in July and Abe's time in office ends in September 2018, unless his party approves an exceptional measure to extend his leadership.