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Japan: New scenario of deferred tax hike, snap election - Nomura

FXStreet (Bali) - Nomura Economists think that it is now much more likely that a general election will be held by the end of 2014, and that a planned sales tax will be delayed as reported by Sankei Shimbun.

Key Quotes

"Increasing likelihood of consumption tax hike being postponed, snap election The Japanese authorities have been stepping up moves that lead us to assume that the consumption tax hike is to be postponed and a snap election held. The 12 November edition of the Sankei Shimbun reported that Prime Minister Shinzo Abe had resolved to hold a general election in December, and the Mainichi Shimbun also carried a headline saying that the PM had started the process for holding an election by the end of the year. The ruling and opposition parties have started concrete preparations to get ready for an election, such as selecting candidates, and we think it is now much more likely that a general election will be held by the end of 2014."

"In light of this, we have revised our main scenario from the consumption tax hike being implemented according to plan to a scenario whereby the consumption tax hike is postponed and a general election is called. It is being widely reported that PM Abe will indicate his decision to dissolve the Lower House between 17 November, when preliminary estimates for 2014 Q3 GDP are being released, and 26 November, when a meeting is planned between LDP and Democratic Party of Japan party leaders, with the Lower House election likely to be held on either 14 or 21 December. The prospect is now in view of the timing of the next consumption tax hike being put back from October 2015 to April 2017."

"We estimate that 2014 Q3 growth came in at just 1.4% q-q annualized. Data such as the Economy Watchers Survey released on 11 November do not suggest an improvement in the economy in October. We think the reason for holding a general election will likely be to ask the people's mandate for scrapping the three-party agreement and shelving the consumption tax hike in the wake of weak data in economic indicators for 2014 Q3 onwards."

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