Week in FX Asia – China Adds Stimulus as Japanese Tax Hike Arrives

– China announced small stimulus measures this week.
– The stimulus scope is geared towards small businesses and social housing.
– Chinese leaders are trying to be proactive to avert a more widespread slowdown of the economy.
– Bank stress tests will be conducted to correctly measure bad loan exposure.
– Chinese inflation will be reported this week.

– Sales tax hike came into effect on April 1. Tax went from 5% up to 8%.
– Government needs the tax revenue to reduce deficit as population ages.
– JPY went close to the 104 level versus USD as US figures were positive.
– Next week BoJ expected to hold Rates but probability of adding stimulus is growing after government pledged to offset tax hike impact on growth.

The Asian Development Bank is expecting Asia to grow by 6.2 percent in 2014. This forecast is a slight improvement of the 2013 figures of 6.1 percent. The ADB concurs with estimates that see China slowing down in 2014, but is overall optimistic in the growth of the region. Upswings are expected in Korea, Hong Kong and Taipei. India has also rising potential for growth if the much awaited reforms are delivered.

China announced a set of stimulus measures this week. The measures were considered a “mini” stimulus and raised more questions than offered answers. China has a 7.5 percent growth target for 2014. The measures introduced show some concerns about the economy hitting that target. Then again the measures are small in scope, so they won’t help growth all that much. The stimulus announced is geared towards improving infrastructure projects such as transportation and housing.

Chinese banking regulators have announced a round of stress tests after concerns about rising bad loan portfolios. The China Banking Regulatory Commission (CBRC) reported a 1.0 percent ratio of non-performing loans. The highest ratio in two years.

The much awaited tax hike hit Japan this week. Just before it came into effect some retailers of high ticket items received a boost in sales. There were few optimistic voices vouching for the timing of the added tax. Mr Yen, Eisuke Sakakibara, a former finance minister approved of the timing. Shinzo Abe’s government have been criticized for raising the sales tax as it could clip the wings of the recovery he was so intent in pushing.

Corporate Japan has been critical of the sales tax, but have reached a compromise regarding wage increases. It seems Japan Inc. is willing to raise wages if the government follows through on labour reform.

The JPY was on track to punch through the 104 level this week as the market prepared to digest the US employment numbers in March. The dish proved to be too complex and although overall positive it did not support a USD rally. The JPY recovered some ground and was trading in a 103.30/50 range.



* JPY Bank of Japan Monetary Policy Statement
* GBP NIESR Gross Domestic Product Estimate
* USD Fed Releases Minutes from March FOMC
* GBP Bank of England Rate Decision
* GBP BOE Asset Purchase Target
* EUR German Consumer Price Index
* USD U. of Michigan Confidence


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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza