Japanese Consumer Spending Deteriorates, IMF Wants More Reforms

by on May 30, 2014 12:57 pm BST

The Bank of Japan (BoJ) may be optimistic that the three percent tax hike last month will not deter consumer spending, but April’s consumer spending and production figures came in less than expected. Questions about the longevity of Japan’s growth spurt still remain to be answered. The International Monetary Fund (IMF) wants to see even more action from Japan in order to accelerate growth.

An initial drop in spending was expected, but the 4.6 percent drop in household spending for April, year-over-year, was higher than the 3.2 percent contracted forecasted by economists. This marks the largest decline since 2011, when the nation was hit by a gigantic earthquake and tsunami. Yesterday’s inflation data showed core inflation rising to 3.2 percent from 1.3 percent, over one percent higher than central bank targets. A combination of the sales tax increase and sharply increasing consumer prices will cash strap consumers. Consumer spending fell 13.3 percent in April, opposed to the 13 percent decline forecasted by economists.

The IMF still remains optimistic while encouraging more economic reforms. “Although the consumption payback in the second quarter will lead to a sharp growth contraction, we expect the recovery to resume in the second half of the year with further job growth and rising wages to support moderate consumption growth,” said the IMF in a statement.

David Lipton, the IMF’s first deputy managing director, said he does not see the need for the BoJ to increase their asset purchases during the near-term growth slowdown.