Japan’s “recession” will soon be exposed as an illusion according to the country’s economy minister, Akira Amari, who on Sunday predicted data revisions this week will turn contraction into growth.
Initial figures just three weeks ago showed the economy shrank at an annualised 0.8 per cent in the third quarter, meeting the technical definition of a recession, and prompting gloom about the outlook. But Mr Amari said he expected a revision from 0.8 per cent to zero this week.
That would confirm Japan’s economy is not in a downward spiral, despite sluggish consumption and exports, but it would raise fresh questions about the unreliable early growth data.
“I expect growth to turn positive from here,” said Mr Amari, an influential figure in the government of prime minister Shinzo Abe. “I think we’re on a path of steady recovery.”
Expectations for an upward revision have grown since the publication of finance ministry data last week showing a third-quarter rise in corporate investment. That was the opposite of the initial gross domestic product data, which showed investment falling.
Analysts at Citi in Tokyo expect an upward revision to show growth was flat while Goldman Sachs expects a revision to plus 0.2 per cent for the quarter.
Mr Abe wants companies to invest more at home and is planning to encourage them by cutting corporation tax from 32.11 per cent to 29.77 per cent next year. He is also pushing them to raise wages.
Mr Abe’s goal is to turn the surge in corporate profits caused by the weak yen into greater demand, in order to sustain economic growth and drive inflation towards the Bank of Japan’s goal of 2 per cent.
One problem is the large number of Japanese companies that make accounting losses and therefore pay no corporation tax anyway. On Sunday, Mr Amari hinted at new measures to push them towards investment.
“You have to pay fixed asset taxes regardless of losses,” he said. “I’d like to bring in fixed asset tax relief for companies making new investments, which is something we’ve never done before.”
The overall effect of any tax changes is hard to predict, however, because the government is engaged in a complicated debate about how to pay for them. It is planning to raise the “pro forma” corporation tax, which is paid regardless of a company’s income.
Taxing companies regardless of profitability should force them to restructure and improve productivity. Hitting them with a rise in the pro forma tax may discourage investment, however, even if it offset by relief from fixed asset taxes.
The government is planning a modest supplementary budget for this year, expected to be Y3tn-Y4tn, but the corporation tax changes are likely to be part of the budget for the new fiscal year starting in April.
