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Election to determine direction of Abenomics – Nomura

FXStreet (Barcelona) - Research Analysts at Nomura highlight the three strong messages delivered by PM Abe at the news conference where he announced a delay in consumption tax increase to April 2017 and the plan to dissolve Lower House for general election.

Key Quotes

“The first is that he wants to create conditions for incomes to rise steadily by forcefully pushing ahead with growth strategies. We view this as a declaration of the prime minister's intention to continue to throw all his weight behind growth strategies following the election, in response to concerns that people may have that dissolving the Lower House could delay growth strategies.”

“The second is that the banner of fiscal consolidation will not be lowered and the consumption tax will definitely be raised in April 2017. Mr. Abe made it clear that when the consumption tax is raised next time there would be no economic assessment preconditions attached. We think the prime minister's position on this will have a favourable effect on financial market stability as we think there is no dispute on the importance of fiscal consolidation for Japan.”

“The third message is that economic stimulus measures will be taken to prop up consumer spending and regional economies in response to recent deterioration in the economy. Mr. Abe did not provide any details, but according to the Yomiuri Shimbun and other media outlets, he is considering stimulus of ¥2-3trn."

"We think the FY14 supplementary budget has room for up to about ¥4trn in spending by leveraging greater-than-expected tax revenues and surpluses, and we think most news reports conservatively cite the likelihood of ¥2-3trn in view of fiscal consolidation concerns”

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