"I see risks somewhat tilted toward the downside for both the economy and prices. If the BOJ were to act again, it won't rule out any policy steps in advance."
- Ryuzo Miyao, BoJ Board member
The decision to make a hike in consumption tax in April was made by the Japanese government after the economy went under scrutiny and Japanese leading economists said the economy will withstand the planned increase. Nevertheless, latest reports are indicating weakness in the world's third largest economy, even though Abenomics already helped to boost growth. On Wednesday the Cabinet Office said that core machinery orders plunged 2.1% in September, exceeding analysts' projections for a 1.4% drop and following a 5.4% gain in August. Though this indicator is highly volatile from month to month, it is a leading gauge of capital expenditure. Soon after the report, the Bank of Japan official warned of headwinds from soft overseas economies, underscoring challenges of sustaining long-term economic recovery. Since December, when Shinzo Abe returned to the office, he pledged not to waste time in trying to turn the economy around from decades of deflation. In contrast, he announced a three-pronged strategy of increased public spending, rapid monetary easing, and a set of structural reforms that are all aimed at promoting business growth. A significant drop in the Yen has helped domestic exporters to make their products more competitive globally, while the fact the Nikkei 225 is trading over 50% higher than it was in December, is reflecting investors' faith in Abenomics. At the same time, Robert Feldman, head of Japan economic research at Morgan Stanley warned that Japanese economy may slow in the next fiscal year.
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