What drove strong consumer spending in Q2?

While many commentators have attributed the strength in Q2 consumer spending to purchases being brought forward ahead of the sales tax hike, we think it had more to do with the longer-than-usual Golden Week holiday. If we are right, that’s another reason to think that the upcoming tax hike will prove less damaging than previous ones. Meanwhile, the Bank of Japan has started to respond to the continued slump in JGB yields by slowing its bond purchases more forcefully. To defend the credibility of its target, the Bank may eventually have to sell some of its holdings.