Yen dips as tax hike looms

Source: Dukascopy Bank SA
"We are still seeing generally modest inflation pressures. We will see some upward drift in inflation in coming months."
-Sal Guatieri, senior economist at BMO Capital Markets

The Japanese Yen continued its depreciation against other major currencies on Monday as the International Monetary Fund claimed the global economy is improving, damping demand for safe haven currencies. Moreover, the Japanese government will increase the consumption tax hike to 8% from 5% next week, a move that will most likely become a massive drag on the economy and can drag it into another recession. The Yen lost 0.9% against the Dollar last week and added to earlier losses 0.3% on Monday, with the USD/JPY pair hitting 102.57.

After Janet Yellen's comments and weak data from the world's third largest economy, investors are making bets on when the central bank will pull the trigger once again. According to a poll conducted by Bloomberg, 35% of analysts believe the BoJ will be forced to expand its already unprecedented stimulus programme as early as next month. While BoJ's Governor Haruhiko Kuroda considers the current stance of the monetary policy as appropriate, his deputy Kikuo Iwata warned that inflation below 1% for a long period of time is dangerous and is heightening the risk of deflation. Meanwhile, weak inflationary pressure was the key topic for European policymakers during the last several months, as the risk of deflation is around 30%. In attempt to calm down markets, Iwata pointed out that stimulus programme introduced in April 2013 already includes the potential effect of the tax hike.
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