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Short-term growth outlook positive for Japan – DBS

FXStreet (Barcelona) - The DBS Research Team notes the short-term growth outlook for Japan turning positive due to the delay in fiscal tightening and the further easing of monetary policy, and comment on the long term negative implications.

Key Quotes

“The short-term growth outlook has turned positive due to the delay of fiscal tightening and the further easing of monetary policy. The removal of the 2ppt sales tax hike from the 2015 baseline assumptions could lift consumption growth by 0.5ppt, equivalent to 0.3ppt in GDP growth.”

“The rise of stock market prices as a result of QE expansion should also boost consumption growth, through lifting sentiment and creating wealth effects.“

“On the flip side, the long-term fiscal prospects have become more challenging due to the postponement of sales tax hike. The further 2ppt rise in sales tax is designed to create a new source of tax revenues worth JPY 4trn per year. These revenues will kick in only in 2017, instead of 2015 under the original assumptions.”

“Also note that the government has promised to compile additional stimulus measures next year under a supplementary budget, as well as cutting the corporate tax rate starting from FY2015. The goal of balancing primary budget deficit by FY2020 now appears increasingly distant and elusive. This carries negative implications for sovereign credit ratings and financial stability in the longer term.”

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