Second-quarter gross domestic product (GDP) is due on Monday from Japan. This is an important data point for ‘Abenomics’ as it will be a key factor in deciding whether the sales tax increase can proceed in its current proposed form.
- The plan is to lift the tax from 5% to 8% in April 2014 and to 10% in 2015
- The debate within the government centres on concerns that the last time an extra sales tax was imposed, consumer spending suffered and hence the economy. But not imposing the tax to gain extra revenue risks further ballooning of Japanese government debt. Its a a tough dilemma for the administration and debate is ongoing.
- There are advisers to Abe saying a better plan would be to raise the tax rate in small increments (say 1%) spread over time – which would also allow easier back-pedalling of the tax, should its impact on the economy be too deleterious
The release today (from my earlier post, check it out for other data points being released simultaneously) is due at 2350GMT:
- GDP (seasonally adjusted) for Q2, preliminary, q/q: expected is 0.9%, prior 1.0%
- GDP Annualized (seasonally adjusted) for Q2, preliminary: expected is 3.6%, prior 4.1%
Today’s is the preliminary figure for Q2 GDP. The revised figures will be released on on September 9 and a final decision is expected after the revision. Note that there can be large differences between the preliminary data (today’s) and the following revisions (September 9) – so today’s data is likely to provide volatility and not certainty.
Current thinking is that the tax rate hikes will go ahead as planned, which is weighing on the Nikkei and thence on USD/JPY – so that would seem to be the danger side today if the figures come in as or better than expected. Worse than expected, though, should relieve some of the selling pressure on the Nikkei and be a positive for USD/JPY.
GDP q/q, past data: