Economy proving resilient to tax hike

The latest data suggest that the tax hike has not had a lasting impact on Japan’s economy. Business surveys have mostly rebounded, spending has too, and manufacturing output has stabilised. What’s more, the labour market is as tight as it has been in many years. Against this positive economic backdrop, an increasing number of commentators now expect the BoJ to end monetary stimulus early next year. We think this is premature, as a range of indicators still indicate that inflation will fall short of the central bank’s 2% target in coming months and inflation expectations have started to moderate.