CONSUMPTION BOOMS:
Annualized Growth Hits 6.6% Ahead of Tax Hike

July 3, 1997

Japan's gross domestic product for the January-March quarter, the last in fiscal 1996 (April 1996 to March 1997), grew 1.6% in real terms over the October-December period, or at an annualized rate of 6.6% according to preliminary figures released by the Economic Planning Agency. The boom stemmed partly from the ninth straight quarter of increased plant and equipment investment, but mainly from personal consumption, which marked its highest growth in 37 years as consumers scrambled to make their purchases ahead of an April 1 consumption tax hike. This jump in consumer spending pushed the fiscal 1996 growth rate to a six-year high of 3.0%, well over the 2.5% growth that the government had forecast.

Consumer Spending Picks Up Other Sectors' Slack
Consumer demand saw a quarterly increase of 4.6% as people rushed to buy automobiles, televisions, and personal computers ahead of the April 1 hike of the consumption tax rate from 3% to 5%. Buoyed by increased earnings, companies expanded investment in transportation and telecommunications equipment, offsetting sluggish (0.7%) growth in capital spending.

Private housing investment, meanwhile, fell 3.9% from the previous quarter--its first decrease in two quarters--as construction of private homes stagnated. Public works spending dropped 12.4%, its biggest fall in 23 years, as the government continued to move away from it as a means of boosting economic activity.

Domestic demand accounted for 1.5 points of the 1.6% GDP growth, while external demand (exports minus imports) accounted for the remainder. Of the 3.0% GDP growth realized in fiscal 1996, the domestic demand component totaled 3.4 points, indicating a negative 0.4 point contribution from external demand.

The EPA believes that the strong domestic-demand showing indicates a shift in the pattern of recovery, from one led by government spending to one driven by private-sector activity.

The current account surplus in fiscal 1996, meanwhile, was 1.4% of nominal GDP. The figure is 0.5 points lower than the previous year, reflecting the rise in imports.

		1996				1997
	FY 1996	I	II	III	IV	I
Real GDP	3.0	2.0	-0.3	0.3	0.9	1.6
Personal consumption	2.8	2.0	-1.0	-0.2	1.2	4.6
Private housing investment	14.2	6.0	5.9	-0.5	4.0	-3.9
Private plant and equipment investment	6.4	0.8	1.4	2.0	2.2	0.7
Increase in private inventories	-57.4	1.9	-48.1	-8.5	-51.6	-12.9
Government consumption	2.3	0.8	0.1	1.3	0.6	0.1
Government investment	-0.5	6.5	2.1	-2.0	-7.4	-12.4
Increase in public inventories	-33.9	243.9	-58.3	-68.2	-42.3	619.7
Net exports of goods and services	-48.6	-55.7	-82.0	507.8	146.5	10.3
Exports of goods and services	3.7	-0.7	0.1	1.6	5.0	0.7
Imports of goods and services	7.5	2.0	1.8	-0.3	1.8	0.2

Ministry of Foreign Affairs

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