"Of course, there could be both upside and downside risks to the BOJ's price forecast but such risks have not materialized, and if that's the case, the current policy will continue"
- Haruhiko Kuroda, BoJ Governor
The world's third largest economy is expected to gain momentum ahead of the upcoming tax hike that can dampen all the efforts by Shinzo Abe and Haruhiko Kuroda. Therefore, private and business consumption is likely to rise, as households and companies could be showing willingness to spend more cash on goods and services before they will be charged more.
This week a report from the Ministry of Economy, Trade and Industry showed retail sales climbed 2.6% on a yearly basis in December, marking the fifth straight monthly gain. Nevertheless, the figure is significantly lower than November's rise of 4.0%, and worse than analysts had predicted. On a monthly basis sales advanced 0.8%.
In October Japanese Prime Minister announced a sales tax hike, saying it will be increased from 5% to 8% in April, in a bid to curb the country's mounting public debt bill. Moreover, the tax will be increased to 10% in 2015. Many economists have already expressed their concerns the hike will possibly send the economy back into recession, after a similar move was applied in 1997. Even though the government pledged to introduce a 5 trillion yen fiscal stimulus package, additional easing from the BoJ could be required in order to assure stable amelioration.
© Dukascopy Bank SA