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Japan's economy grew faster than previously estimated in the second quarter, aiding Prime Minister Shinzo Abe's reflation campaign as he considers whether the nation can withstand a sales-tax increase.
Gross domestic product expanded an annualised 3.8 per cent from the first quarter, higher than an initial estimate of 2.6 per cent, reflecting stronger private capital investment, the Cabinet Office said in Tokyo on Monday. The median forecast of 23 economists surveyed by Bloomberg News was for a 3.9-per cent increase. The economy grew 4.1 per cent in the first quarter.
Japanese stocks jumped and the yen weakened after Tokyo won a bid to host the 2020 Olympics, helping Abe's effort to revive the world's third biggest economy. Analysts from Fujitsu Research Institute to UBS AG said a sales tax increase in April is now a "done deal," with Economy Minister Akira Amari saying today that a package of more than two trillion yen ($20 billion) may be needed to offset the economic blow and put Japan on a recovery track.
"The news on the Olympics will boost Abe's popularity and that will be another push for him to raise the sales tax," said Daiju Aoki, senior economist for Japan at UBS in Tokyo, who accurately forecast GDP growth of 3.8 per cent. "A recovery led by Abenomics is accelerating. The effect of a weak yen is improving corporate profits and that is making companies willing to boost investment."
Stimulus
The Nikkei 225 Stock Average gained 2.5 per cent in Tokyo. Dentsu Inc, which has broadcast rights for the games in Asia, surged 7.4 per cent. The yen fell 0.6 per cent to 99.71 per dollar as of 3:14 pm.
There is a high chance that Abe will decided on the sales tax on October 1, Amari told reporters in Tokyo. The Bank of Japan (BoJ) will release a survey of business sentiment on that day.
The finance ministry estimates the setback to the economy from a sales-tax increase would be around 2 trillion yen, Amari said. A 5-trillion yen fiscal package will be needed to cushion the impact from the planned increase, according to a Bloomberg News survey of 23 economists in July.
BoJ Governor Haruhiko Kuroda last week signaled policy makers can use extra fiscal and monetary stimulus to offset any hit to growth and help achieve the central bank's two per cent inflation target.
