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Japan – Strong labour market drives spending

29 October 2013

A stronger labour market is driving gains in consumer spending, which suggests that Prime Minister Shinzo Abe’s efforts to beat deflation with government spending and aggressive monetary easing are making progress, reports South China Morning Post.

Consumer spending in Japan jumped last month as shoppers front-loaded purchases before a sales tax increase next year, a boost to government efforts to spark demand and end 15 years of deflation. In April, the sales tax will rise to 8% from 5%. This has helped spur a boom in residential property and prompted many shoppers to buy goods before they become more expensive.

Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management commented: “People are looking to shop before the tax hike, and the jobs situation is improving. The negative output gap is narrowing, and soon we will have a positive output gap that will contribute to inflation.”

The jobs-to-applicants ratio was 0.95 in September, unchanged from the previous month, when it rose to its highest since May 2008. The seasonally adjusted unemployment rate fell to 4% from August’s 4.1%, the ministry’s figures showed, matching economists’ median forecast.

Mr Abe has made ending deflation and turning the economy around a top priority of his government. As part of the plan, the Bank of Japan radically expanded its quantitative easing in April to try to meet a goal of 2% inflation in two years. The central bank is due to release updated inflation and economic forecasts at a policy meeting on Thursday.

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