Jamie shared his thoughts on this earlier but there are some new developments.
Nikkei says the ruling DPJ will decide about raising the consumption tax to 10% in 2015 from the current 5% by the end of the year and that a hike is likely. Social security and other taxes will also be reformed. A draft plan could be released at any time and will specify the timing of the tax hike, which will be phased in.
This will create some artificial inflation and help bring the deficit under control but it could crush economic growth and create political uncertainty. Because of that, it’s hard to say how it might affect the yen. What’s more clear is that it will hurt global growth, which will weigh on commodity FX.
