Japan’s export-oriented manufacturing sector is benefiting from the recovery in the global economy and the weakness in the yen, but the signals on domestic demand are mixed. Business spending does finally appear to be recovering. However, household incomes are being squeezed by rising prices – even before the planned hike in the consumption tax next April. While consumer confidence picked up in September, the actual data on expenditure have been weak, which is consistent with the declines in real wages. Overall, the strong GDP growth in the first half of the year is encouraging, but unlikely to be sustained.
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