Japan: Wider support for sales tax hikes, Yen negative

FXstreet.com (Barcelona) - There appears to be further evidence that the planned tax hikes in Japan will gain a majority, notes Yujiro Goto, FX Strategist at Nomura, who outlines the satisfactory pro-hike feedback shared by most participants on the consumption tax panel held yesterday.

According to Goto: "We see the increasing support for the tax hikes as positive for Japanese equities and USDJPY, while uncertainties still exist." The Strategist adds that according to a Nikkei survey of professional domestic investors on the consumption tax hike, released over the weekend, "it suggested that our view has now become a consensus."

Goto continues: "The survey showed that most investors expect USDJPY to rise if the government decides to hike the consumption tax rate as scheduled while USDJPY is more likely to decline if the tax hikes are postponed. Thus, it seems that even a knee-jerk reaction of USDJPY is now more likely to be positive if the government decides to hike tax rates as scheduled, while we saw a risk that the initial reaction could be the opposite."

The final decision by Prime Minister Abe is expected during the first week of October, Goto said. By then, "uncertainties on US monetary policy, Fed tapering and nominees for the next Fed chairman are also likely to be cleared up, encouraging USDJPY buying" the Nomura Strategist said, who remains patient waiting for the right timing to go long USDJPY.