Japan Shows Resilience to Tax-Rise on Record Confidence Gain

Confidence in Japan’s economic outlook among taxi drivers and restaurant staff and other workers soared by a record in April, indicating the blow from last month’s sales-tax increase may be short-lived.

A gauge of expectations for two to three months ahead rose to 50.3 from 34.7 in March, the biggest jump since the government started compiling data in 2000, the Cabinet Office said in Tokyo today. This contrasts with the survey for current conditions that dropped to 41.6 from 57.9 after the rise in the levy to 8 percent from 5 percent.

The improved outlook may lower the need for the Bank of Japan to add more stimulus to help an economy facing a one-quarter contraction weather the tax increase. Sustained momentum would raise the odds the government will proceed with a plan to lift the tax rate to 10 percent next year as it looks to contain the world’s highest debt burden.

“The result shows Japan’s resilience to the sales-tax hike,” said Kazuhiko Ogata, chief Japan economist at Credit Agricole SA. “The outlook will bolster the BOJ’s confidence in the economy and reinforce their view that further monetary easing isn’t needed in the near future.”

The fall off in sales after rush-demand ahead of the tax hike wasn’t as bad as expected, a representative of an electronics store on the southern island of Kyushu was quoted as saying in today’s report. “Things might start to improve from July as we move into the summer bonus shopping season,” the person said.

’Fleeting’ Weakness

The economy is set to contract an annualized 3.3 percent in the April-June period, before a 2 percent expansion the following quarter, according to a Bloomberg News survey.

The “strong rebound in the outlook component suggests that any consumption tax-related weakness will prove fleeting,” Marcel Thieliant, a Singapore-based economist at Capital Economics.

Prime Minister Shinzo Abe will decide whether to go ahead with the further sales-tax increase in December after examining economic data, Economy Minister Akira Amari said last month.

The negative shock from the higher tax “is as we anticipated or even slightly less than we anticipated”, Bank of Japan Governor Haruhiko Kuroda said May 5 in an interview with CNBC Television in Kazakhstan.

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