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Japan

Japan's GDP slumps after tax hikes

Japanese GDP has slumped dramatically year-on-year for the second quarter as a sales tax hike bit into household spending. Declining worker wages were also a factor.

Abenomics in crisis

Japanese second quarter gross domestic product (GDP) dropped by 6.8 percent in the second quarter, from April-June, on a combination of factors - chiefly a controversial sales tax hike and a continued drop in worker incomes.

The decline was not unexpected. A poll by the Nikkei business daily showed that economists had on average expected a 7.2 percent decline.

The sales tax rose from 5 percent to 8 percent in May, the first hike since 1997. Prime Minister Shinzo Abe had attempted to cushion the blow by means of additional infrastructure spending and special tax measures aimed at incentivizing companies to increase capital spending and wages.

Attempts to stoke wages appear to have failed so far. The income of Japanese workers' households dropped 6.6 percent in June for the ninth consecutive month of fall.

Consumer spending plunged 5.0 percent in the second quarter, compared with a 7.7 percent surge in the first quarter, when consumers made major expenditures ahead of the sales tax hike, the Cabinet Office reported. Consumer spending contributes 60 percent to Japan's GDP.

Exports declined slightly in the second quarter, by 0.4 percent, down from a 6.5 percent increase in the previous quarter, and corporate investment fell 2.5 percent - in contrast to a 7.7 percent surge in the first quarter.

Rising tensions with China are an additional factor in the country's exports outlook.

Economic Revitalization Minister Akira Amari stuck to his overall economic assessment, saying the economy "has continued to recover moderately".

Prime Minister Abe is set to decide later this year whether to move forward with a planned additional sales tax hike from 8 to 10 percent in October of 2015.

nz/hg (Reuters, AFP, dpa)

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