"The Bank of Japan continues to buy the equivalent of $75 bln a month of various assets, including JGBs, ETFs, and REITS. The higher tax revenues to do corporate profits and the sales tax hike are (optimistically) projected to boost the government's income by 15%."
- Marc Chandler, Head of FX at BBH
April is likely to become a determinative month for the Yen, as this year Kuroda announced his unprecedented stimulus programme in April, while in 2014 he can inject more liquidity into financial system in the same month. The main reason behind this bold suggestion in the planned consumption tax hike in April, which can become a massive drag on the Japanese economy. While the economy is benefitting from measures done by Shinzo Abe's team, the Bank of Japan has expressed its concerns the April consumption tax hike may derail the growth. On October 1 Abe announced the tax will be increased to 10% from the current level of 5%, starting with a jump to 8% in April. This measure is introduced in attempt to cut the government's mounting debt burden and according to latest projections, this measure can increase government income by around 15%.
This week a monthly report from the central bank showed the world's third largest economy will continue expanding at a modest pace, while it will be affected by front-loaded rise and then subsequent decline in domestic demand before and after the widely-discussed tax hike. The BoJ also said that exports, public investment, industrial output are all likely to trend upward for the time being and become stable at a high level. What is more important, is that Japanese official have dropped the word "deflation" from its report for a first time in four years.
© Dukascopy Bank SA