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Forex pairs in this Article » EUR/USD, USD/JPY (Bali) - Japanese GDP will most likely plunge in Q2 2014(-4.5% q/q saar) when the new sales tax from 5% to 8% in April 2014 is implemented, as it has done following previous increases in 1989 and 1997, notes John Normand, FX Strategist at JP Morgan.

Key Quotes

"The recession which followed the 1997 hike is clearly the wrong benchmark since it coincided with the Asian financial crisis. And the BoJ will probably ease again in April. Hence the growth rebound we expect to +1.2% in Q3 and +1.7% in Q4."

"But should the economy fail to lift quickly, the Nikkei and USD/JPY will probably decline, especially given the length in both markets which would prevail at that time."

"There are other risks to Abenomics too if key legislation fails. Two important bills are one to eliminate tariffs on some agricultural products, and another governing state secrets to empower the government to better secure sensitive information and increase penalties for those who leak them."

"If these measurements impair Abe’s popularity and he exhausts political capital on them, it may be difficult to conduct the further structural reform which global investors expect.
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