Japan cuts growth outlook after tax hike

Tokyo - The Japanese government on Tuesday downgraded the nation's economic growth forecast for the current financial year to 1.2% from 1.4% amid concerns about the impact of a tax increase.

The government predicted consumer spending, which accounts for about 60% of gross domestic product, to grow 0.3% in the financial year through March, revised down from a 0.4% rise estimated in December.

Tokyo raised the nation's sales tax in April to 8% from 5% - the first hike in 17 years.

Policymakers were concerned that the impact of the hike would continue to dampen consumer demand. The average of monthly consumption expenditures per household for May fell to 3.1% for the second straight month of decline.

The income of Japanese workers' households also dropped 4.6% in May for the eighth consecutive month of fall despite reported pay raises at big companies.

Meanwhile, the government maintained its forecast on the consumer price index for the current financial year at 1.2%, excluding the impact of the tax hike.

In April 2013, the Bank of Japan decided to take aggressive monetary easing steps to achieve an inflation target of 2% within about 2 years as the banks as well as the government vowed to combat years of deflation.