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Japan recovery at stake?

September 30, 2014

The most recent economic data from Japan have suggested the world's third largest economy is facing a hard time recovering from a sales tax hike earlier this year. Both factory output and household spending dropped.

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Containers at Tokyo Port
Image: picture-alliance/dpa

Japan's industrial output saw a surprise drop in August, the Economics Ministry reported Tuesday. Factory production shrank by 1.5 percent month-on-month after rising by 0.4 percent in July.

Separate data from the Internal Affairs Ministry showed household spending also took a tumble in August, falling by a steeper-than-expected 4.7 percent from a year earlier.

Spending has thus dropped for the fifth month in a row since the government raised the sales tax from 5 to 8 percent in April.

Carry on regardless?

Japanese policymakers are expected to decide by the end of 2014 on whether to go ahead with earlier plans to raise the sales tax even further next year.

The government in Tokyo and central bank leaders had argued the national economy remained broadly on a recovery path, withstanding a temporary shock from the tax hike. But after the release of Tuesday's rather gloomy data, observers remarked that position was getting harder to defend now.

"There's no sign of a V-shaped economic recovery previously forecast by the government," Norinchukin Research Institute Chief Economist Takeshi Minami told the AFP news agency.

hg/ng (AFP, dpa)