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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