While the economy initially seemed to bounce back quickly from the shock caused by the consumption tax hike, recent data have already cast doubt on the strength of the recovery. Machinery orders have plummeted, industrial production has weakened, and the unemployment rate has jumped. Sentiment indicators suggest that output will only rise slowly in coming months. However, we would be wary of undue pessimism. It was always unlikely that the effects of the higher tax on spending would disappear overnight, and forward-looking business surveys still point to an improvement in the second half of the year.
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