- Shuji Tonouchi, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities
On Wednesday following the Asian trading session the Japanese Yen lost 0.21% against the U.S. Dollar, with the pair trading around 103.85. Investors are starting to price in the potential expansion of the stimulus programme by the Bank of Japan as the tax hike was already made and investors are trying to assess the potential damage to the world's third largest economy.
Meanwhile, domestic companies start to express their concerns about the success of Shinzo Abe's policies, saying consumer prices will hit only 1.5% in a year from now. This is a sign of how difficult the Bank of Japan could find achieving its ambitious 2% inflation goal by April 2015– two years after the announcement of the stimulus package. A survey compiled by the Bank of Japan echoes with Tuesday's findings that Japan's fragile business sentiment barely picked up over the three months to March, while corporate outlook is considerably lower than in 1977, when Japanese government raised its tax. Another worrying sign for Haruhiko Kuroda is that companies expect inflation rising only by a modest 1.7% during next three years and even five years from now. The first interpretation of these figures is the fact companies are concerned about the impact of the recent two-stage tax hike, while in the second scenario they can express their fears about the feasibility of further Yen weakness.
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