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1 Oct 2013
USD/JPY - Abe hikes sales tax and announces stimulus, but is it enough?
FXstreet.com (London) - Japanese Prime Minister Shinzo Abe has announced that the government will raise the national sales tax to 8 percent in April from 5 percent, with the tax hike being softened by a further government stimulus.
The announcement has driven the USD/JPY down to JPY97.7405, down 0.57 percent so far.
The Bank of Japan predicts that the hike will draw in an additional JPY8 trillion in tax receipts. However, the Japanese PM has announced that the hike will coincide with a JPY5 trillion stimulus package.
The tax hike is part of Abe’s attempts to address the country’s huge budget deficit, running at 10 percent of GDP.
In contrast with the trend in most of the major economies, where fiscal contraction policies have gone hand-in-hand with monetary expansion, Japan has pursued a policy of ultra-loose monetary policy with aggressive government stimulus programmes as the country tries to escape deflationary pressures.
With an economy where the Japanese consumer just will not spend, a sales tax hike is a risky manoeuvre. And even if Abe’s policies to generate the predicted revenues, at the current rate they would quickly be consumed by the country’s out of control government spending.
The announcement has driven the USD/JPY down to JPY97.7405, down 0.57 percent so far.
The Bank of Japan predicts that the hike will draw in an additional JPY8 trillion in tax receipts. However, the Japanese PM has announced that the hike will coincide with a JPY5 trillion stimulus package.
The tax hike is part of Abe’s attempts to address the country’s huge budget deficit, running at 10 percent of GDP.
In contrast with the trend in most of the major economies, where fiscal contraction policies have gone hand-in-hand with monetary expansion, Japan has pursued a policy of ultra-loose monetary policy with aggressive government stimulus programmes as the country tries to escape deflationary pressures.
With an economy where the Japanese consumer just will not spend, a sales tax hike is a risky manoeuvre. And even if Abe’s policies to generate the predicted revenues, at the current rate they would quickly be consumed by the country’s out of control government spending.