Japan quarterly growth uptick clears way for tax hikes

Japan's economy grew more than initially thought in the June quarter, revised data showed Monday, supplying more evidence of an economic recovery which is likely to clear the way for a hike in the nation's sales tax.

The growth figures, which come after Tokyo launched an economy-boosting blitz that has pushed down the value of the yen, showed a big jump in firms' capital spending -- a key indicator of business sentiment.

New investment by Japan Inc. was up 1.3 percent between April and June, reversing an initial estimate of a 0.1 percent decline.

The figures "show that Japan's economic recovery is on the right track," said Hisao Matsuura, strategist at Nomura Securities.

The boost to corporate capital spending could run in tandem with a rise in household spending and a strengthening labour market, he added.

The Cabinet Office put growth in the April-June quarter at 0.9 percent compared to the previous three months, up from a preliminary reading of a 0.6 percent expansion.

The news helped send the benchmark Nikkei 225 index soaring nearly 3.0 percent at the open as investors also cheered Tokyo's winning bid to host the 2020 Olympics.

The economic impact of the Games is likely to be limited, but Tokyo's weekend victory added to a wave of optimism over Japan's prospects after many years in the doldrums.

"It's good for the economy that people's sentiment has turned positive," said Takeshi Minami, an economist at Norinchukin Research Institute.

In Monday's data the government also raised the annualised economic growth figure to 3.8 percent from an original estimate of 2.6 percent. Annualised figures show the rate of growth if the data was stretched across an entire year.

"The conditions are ripe for the government to go ahead with the sales tax hike," Nomura's Matsuura said.

Tokyo is considering whether to launch a series of tax rises that many fear could derail a budding recovery in the world's number-three economy.

The revised GDP figures have been highlighted by Prime Minister Shinzo Abe as key to his government's decision on the plan, which could see Japan's sales tax double to 10 percent by 2015.

While the hike is seen as crucial to bringing down a staggering national debt -- proportionately the worst among industrialised nations at more than twice the size of the economy -- some fear higher taxes will hit consumer demand and blunt any recovery.

Any negative impact from the tax rises could heap more pressure on the Bank of Japan (BoJ) to further loosen its monetary policy in a bid to support growth.

Last week, the central bank upgraded its assessment of the long-lumbering economy, saying a recovery was firmly under way.

BoJ policymakers held off expanding a massive stimulus programme unveiled in April, which has been credited with kickstarting growth and sending the value of the yen tumbling in a boost for exporters.

The bank's bond-buying scheme is a key part of premier Abe's plan to reinvigorate the long-suffering economy, dubbed "Abenomics".

The scheme is aimed at pulling Japan out of years of deflation which has crimped consumer spending and hurt producers.

However, the country's trade balance has been dented by the soaring cost of dollar-denominated energy imports since the Fukushima nuclear disaster more than two years ago.

Tokyo was forced to turn to pricey fossil fuel imports to plug the energy gap after shutting down the country's stable of nuclear reactors, which once supplied about one-third of Japan's energy needs.

  • COMMENT: Xenophobia rears its ugly head in Singapore once more 11 hours ago
    COMMENT: Xenophobia rears its ugly head in Singapore once more

    Kirsten Han is a Singaporean blogger, journalist and filmmaker. She is also involved in the We Believe in Second Chances campaign for the abolishment of the death penalty. A social media junkie, she tweets at @kixes. The views expressed are … Continue reading →

  • Driving a $900,000 Porsche 918 Spyder to the future 13 hours ago
    Driving a $900,000 Porsche 918 Spyder to the future

    It’s more than just its inherent speed, or the whooshing noise that fills the cabin like a school choir jamming with James Hetfield. It’s what it represents in an industry full of skeptics. It’s a portal into the future – a time capsule left by some mad scientist born decades too soon. It’s something that shouldn’t exist. And yet it does.

  • 919 reasons to love: Flickr photo of the day 14 hours ago
    919 reasons to love: Flickr photo of the day

    We've brought you the drive video of the $900,000 Porsche 918 Spyder -- an 887-hp hybrid supercar with two electric motors working in harmony with a big 4.6-liter V-8. But how about this? Porsche's hybrid Le Mans racer -- the 919 Hybrid, sent to us by Kevin Leech. Get on board with electrification, folks. Because it's taking over the world.