The Bank of Japan said that Japan's economy was "recovering moderately", boosted by a pick-up in exports and in companies' investment in fixed assets. Public investment is also rising while the housing sector is looking stronger.
A gentle housing recovery in Japan may be underway as potential buyers respond to low borrowing costs and a sense that prices have bottomed after years of declines. Ten year fixed rate bank mortgage rates have fallen to 1.5%. Housing starts have been on an upward trend for some time and new construction in the 2013 fiscal year could top the one million mark for the first time in five years.
Prime Minister Shinzo Abe is to decide by early October whether to allow the sales tax to rise from 5% to 8% next April. He has tied his decision to the economy’s growth rate and the Tankan survey of business investment, among other data. If the sales tax increase is to go ahead as planned then there may be a supplementary fiscal stimulus package and/or further monetary easing by the BOJ to offset any perceived slowdown in consumer spending. The governor of the BOJ does not think the fiscal squeeze will "break" the Japanese economy.
Inflation in Japan rose to 0.7% in July, its highest level in almost five years, as the effects of a weaker yen pushed up the cost of fuel and electricity. Excluding the cost of energy, consumer prices fell 0.1% over the year. Nonetheless, some observers detect a demand driven pick- up in prices and a possible pick-up in wages; both of which are necessary if deflationary pressures are easing and the BOJ is to attain its target of a sustainable 2% inflation rate. Workers’ bonus payments have risen but base salaries are generally flat.