JPY Weakens on Tax Hike Delay But Fiscal Concerns Remain

Economists and market analysts expressed optimism about the immediate outlook for the Japanese market after Prime Minister Shinzo Abe announced the postponement of a consumption tax hike originally slated for October 2015, while the delay may cast a shadow over hopes for Japan’s fiscal recovery.

Stocks on the Tokyo exchange rose on Nov. 18 with the Nikkei Stock Average ending at 17,344.06 points, 370.26 points higher than the previous day in which the Nikkei average had dropped by over 500 points. Nov. 17 stocks reacted to an unexpected downturn in Japan’s gross domestic product announced on the same day, which cast doubts over the country’s economic outlook. The following day, however, the market regained confidence, according to Masayuki Kubota, chief strategist with Rakuten Securities Economic Research Institute, as the figure was “primarily affected by a drop in inventory.”

The market has been largely calm about Abe’s decision to delay the tax hike, as one analyst said it “could not have been helped considering the unexpectedly slow movements in recent investment and consumption.”

Daiwa Securities Co. chief economist Kazuhiro Takahashi predicts an upturn in home purchases and other indices that have been on the decline ever since the 8-percent sales tax was implemented in April.

Economists hope that if the tax hike delay pushes up consumers’ real earnings, which have continued to drop due to a rise in prices, consumption will pick up, which will encourage companies to invest.

via Mainichi

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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