Japan: Prime Minister Abe set to announce sales tax hike delay - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the yen has continued to weaken modestly in the Asian trading session extending its losses during this month after USD/JPY broke above key resistance in the near-term at around the 110.00-level.

Key Quotes

“The more hawkish Fed rhetoric is helping to ease Japanese policymakers concerns over the strength of the yen. Japanese policymakers will also be pleased that speculative demand for the yen has cooled in the near-term. The latest IMM report revealed that long speculative yen positions were cut by just over 60% in the week ending the 17th May.

The main focus amongst Japanese policymakers at present is whether to delay the sales tax hike planned for April of next year. According to media reports, Prime Minister Abe already appears to have made the decision to delay the sales tax hike until October 2019 which is expected to be officially announced tomorrow. Finance Minister Aso backed the move overnight stating that with weakness in private consumption, now isn’t the time to raise the sales tax. It has also been speculated that Prime Minister Abe is preparing a fiscal stimulus plan that could amount to JPY5 to JPY6 trillion.

There has been further positive news for Japan’s economy from the latest data releases which point to firmer growth in Q2. It has helped to dampen concerns over the potential negative impact from the Kumamoto earthquake. Industrial production unexpectedly expanded for the second consecutive month in April following a strong rebound in March.

The more favourable external environment is helping to gradually reverse sharp yen gains from earlier this year. At the margin looser fiscal policy from the Japanese government may also weigh modestly on the yen if it helps restore some investor confidence in Abenomics although its potential impact is not clear cut.”