Thereafter, however, private consumption started to recover gradually as the adverse impact of the tax hike waned. Residential investment also appears to have more or less bottomed out. Second, the sharp depreciation of the yen brought only a limited gain in export volume, thus failing to offset a substantial decline in domestic demand caused by the tax hike.
The tepid export performance was due to the following: (1) a shift to overseas production, which was accelerated in the phase of the yen’s sharp appreciation; (2) a loss in price competitiveness in some manufacturing sectors; and (3) weak recovery of global demand.