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Japanese PM to call elections and delay tax hike

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The yen and Japanese equity markets were volatile on Wednesday amid expectations that Prime Minister Shinzo Abe will postpone a planned sales tax hike and call a general election for December.

Abe has said he will make up his mind on the tax increase after assessing July-September GDP data due next Monday. It is widely expected to highlight the fragility of the rebound following a sharp contraction in the second quarter.

The first increase in the two-stage sale tax hike in April knocked the Japanese economy hard, and markets view a delay in the second-phase of the tax hike as positive for growth.

A snap election could cement Abe’s grip on power because opposition parties are too fragmented to win, despite a decline in the prime minister’s approval ratings.

The yen, which has remained under pressure for nearly two years due to the BOJ’s aggressive stimulus spending, gained against the greenback, which traded at 115.37 yen, down about 0.4 percent on the day after marking a seven-year high of 116.11 yen on Tuesday.

Some suggested the yen could come under renewed pressure if Abe were to call an election and emerge victorious.

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