Japan: National Debt Surpasses ¥1,000 Trillion

Consensus Forecasts

According to the finance ministry, Japan’s national debt topped the ¥1,000 trillion mark in Q2 for the first time ever. The government’s debt burden reached a record ¥1,008.6tn as of June 30, underscoring the urgent need for the prime minister to push ahead with a scheduled consumption tax increase which (it is hoped) will help the fiscal accounts. The planned levy on expenditure is due to be raised to 8% in April 2014, up from the existing 5% tax rate, before rising again to 10% in October 2015. The final decision, however, has been deferred until after the revised Q2 GDP release in September, which would help to gauge whether the economy can withstand such a tax hike. According to preliminary estimates (released on our survey date), GDP eased to +0.6% (q-o-q) in Q2, down from the previous quarter’s 0.9% expansion, while on a y-o-y basis GDP improved to 0.9% from Q1’s 0.1% rise. Private consumption was the main driver of growth, though, climbing by 0.8% (q-o-q). Our panel predicts that the consumption tax rise will rein in consumer spending next year.

Latest monthly data, released before the preliminary Q2 GDP estimate, provided a mixed bag of news. On the disappointing side, June industrial production dipped for the first time in five months, while the manufacturing purchasing manager’s index for July eased to a four-month low. The former plunged by 3.3% (m-o-m) in June, while the latter fell to 50.7 in July from 52.3 in the previous month, although this was still above the expansionary threshold. On a more promising note, unemployment fell below 4% for the first time since 2008 and inflation rose by 0.4% (y-o-y) in June, marking its highest annual pace in nearly five years.

You can download a sample of Consensus Forecasts G-7 and Western Europe at www.consensuseconomics.com.

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