Although often perceived as an export-driven economy, Japan is actually powered mostly by private consumption. According to World Bank data, consumption made up 60.9% of Japan's GDP in 2012.
On April 1st, Japan raised its national consumption tax from 5 to 8%. Economic observers view the tax as necessary to manage a huge budget deficit. But its timing has been controversial. Japan’s government introduced the tax just as economic recovery green shoots have begun to sprout, but before they’ve firmly taken root.
The tax also arrives after 15 or so years of deflation, when Japan appears to be more than halfway toward its goal of achieving 2% inflation.
Will this tax – placed atop a touch of inflation - derail Japan’s nascent economic recovery or simply be a manageable headwind?