One of the big questions in the forex market right now is whether Japan will proceed with a planned three-point increase in the consumption tax in 2014. The tax could derail the recovery and with yesterday’s disappointing GDP figures, the risks have grown.
There have been a number of leaks in the last week and that suggests a healthy conversation is going on within the government on what to do next. Just now, Nikkei reports that Japan’s Prime Minister Abe has called for a study of lower corporate tax rates.
At this point it seems as though following through with the planned tax hike is unlikely. Without guessing which path the government follows, any alternative probably means less tax. That’s good news for Japanese stocks but whether it’s good for USD/JPY depends on how the bond market reacts.
