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Japan in recession in Q3, consumption tax hike will most likely be postponed – Danske

FXStreet (Barcelona) - The Danske Bank Research Team sees a further delay in consumption tax hike in Japan due to the weak preliminary Q3 GDP data release.

Key Quotes

“Japan’s GDP unexpectedly contracted 0.4% q/q (consensus: 0.5% q/q; DBM 0.3% q/q) in Q3 after contracting 1.9% q/q in Q2 (revised lower from -1.8% q/q). This means that Japan is technically in recession.”

“In terms of policy, the main implication of the weak Q3 as mentioned above will be that the consumption tax hike will most likely be postponed.

“The Bank of Japan (BoJ) expanded its QE programme aggressively at its previous meeting and we maintain our view that it is unlikely to ease further.”

“Most likely, there will now be less fiscal headwinds for the Japanese economy in 2015 and 2016. This raises the probability that the BoJ will have to exit its aggressive QE programme earlier, although it is unlikely to happen in 2015.”

“Hence, in isolation, a postponement of the consumption tax hike weakens the case for a weaker yen in 2016.”

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