USD/JPY- BoJ’s Kuroda: Economy can absorb consumption tax hike

on Sep 5, 2013
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**iNVEZZ.com, Thursday 5 September:**

There were no surprises from the Bank of Japan today when it left unchanged its current monetary stance.
At the attendant press conference, Governor Haruhiko Kuroda assured the markets that the BoJ stands ready to counter any negative impacts on inflation and growth targets from the proposed increase in domestic consumption tax (from the current five percent to eight percent next year and 10 percent in 2015). Kuroda said that the BoJ will continue to follow its two percent inflation target and is prepared to add further monetary easing if the sales tax hike or other factors should adversely impact the Japanese economy. He added that with inflation moving in line with expectations there is currently no need for additional accommodation.

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According to a Wall Street Journal analysis on 31 August (Japan Consumers Unimpressed by Budding Inflation Signs), policymakers appear to be ignoring the fact that price increases in Japan have been due to a 10 percent hike in electricity charges and a rise of five percent in the costs of other fuel and utility charges. Minus food and energy, the Japanese CPI is still showing deflation (see chart above) and, so the argument runs, the BoJ policies seem to be creating the wrong kind of inflation pressures. That has created negative real wage growth translating for many workers in the world’s third largest economy into shrinking purchasing power. One such worker, 39-year-old Noriko Kobayashi, told the WSJ that “as my monthly salary and bonuses haven’t increased, the rise in consumer prices hurts me”. He added, “I haven’t felt any benefits from Abenomics.”

After Kuroda’s press conference, the USD/JPY pierced the crucial level of 100 for a brief period and reached a 40-day high of 100.12. Currently the pair is trading around 99.8 to be 0.04 percent up for the day.
In the US, the ADP Employment Change for August will be reported at 13.30 BST, with consensus for new job creation in the private sector of 182,000, significantly down on July’s 200,000. The wide range of forecasts though, from 150,000 to 225,000, has probably prevented the markets from yet pricing in any positivity.

US Initial Jobless Claims for last week are due out 15 minutes later at 13.45 BST. The market consensus is for a small drop of 1,000 to 330,000 in the number of Americans filing first-time claims for unemployment benefits. The two updates will be the first sign for traders ahead of tomorrow’s critical employment report as to whether tapering is to start from next week’s FOMC meeting.

The ISM US Non-manufacturing PMI for August is due out at 15.00 BST, with the median estimate for 55.2, down from July’s 56 to 55.2.

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Currency Briefing: Dollar steady as investors evaluate Syria and Fed move USD/JPY – Fibonacci sequences presage major uptrend after BoJ meet

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