The latest figures signal that the economy entered 2019 on a soft footing. Household spending growth slowed down to +1.7% y/y in February (from +2% y/y in January). Retail sales growth eased to +0.4% y/y (after +0.6% in January) and industrial production contracted (-1% y/y). March’s business surveys provide a mixed outlook. The manufacturing PMI recovered slightly to 49.2 points (from 48.9 in February) but continues to indicate a contraction of activity (PMI below 50.0). The services PMI decreased to 52.0 (from 52.3 in February) but continues to signal expansion. In that context, the Central Bank will likely maintain its extra-loose monetary policy stance in 2019-2020. On the fiscal side, the authorities have enacted stimulus measures of +JPY2.03tn to offset the impact of the rise in the sales tax (to 10% from 8%) scheduled for October. If economic activity growth were to slow further, it is likely that that tax hike would be delayed.
