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Amari signals 2nd tax hike, supportive for BoJ easing - BTMU

FXStreet (Bali) - Lee Hardman, Currency Analyst at Bank of Tokyo-Mitsubishi UFJ, notes that following the FT interview with Japanese Economy Minister Amari, who signaled the 2nd sales tax hike will likely go ahead, expectations are growing that the BoJ will have to at least maintain its current aggressive monetary policy easing or even increase the pace of asset purchases further.

Key Quotes

"The yen has strengthened modestly in the Asian trading session reflecting more risk averse trading conditions as Asian equity markets have declined.In an interview with the FT, Japanese Economy Minister Amari has signalled that a second increase in the consumption tax will likely go ahead as planned in October 2015 having stated that it was “necessary” to meet rising costs for social security and to prevent a collapse in confidence in Japan’s ability to maintain fiscal sustainability."

"It was also notable that he stated that “in judging whether the consumption tax hike is going to be implemented or not, we have to think whether any kind of measures can be taken so that the economydoes not sink back into deflation...the key point here is that the BoJ and the government should be aligned with each other”."

"The comments will support investor expectations that the BoJ will have to at least maintain its current aggressive monetary policy easing or even increase the pace of asset purchases further. The BoJ’s aggressive monetary policy easing has seen it recently purchase government debt at negative yields up to one year in maturity, and is now paying the government so that it can hold its debt through printing money. The developments support our view that the yen weakening trend is likely to remain in place."

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