Surprisingly, the consumption tax (CT) was raised from 5% to 8% in April 2014. CT (Consumption Tax) hike has presses back the timing of Japan’s complete exit from deflation.The adverse impact of the CT hike turned out to be worse than what the government or the BoJ had anticipated.As a result, the CT hike created a cautious business sentiment, Earlier we already saw the net domestic fund demand shrunk to 3.3% of GDP. This indicates a weakening of reflationary momentum.On a technical front EURJPY has been maintaining continuation pattern in short term trend as there is no trace of reversals. Relative strength index is converging the price sentiments in the trade of this pair. Fast stochastic also does not evidence any reversal signals. Hence, we believe it would still be a buy from us.Hedge with Option Strategy: Sell a credit Put spread (Bull put spread)We can establish this strategy by selling a Put option and purchase another Put at a Lower Strike Price with the same expiration date for net premium receivable.This trade strategy is advisable only when the underlying exchange rate is projected to move higher or sideways so that put expires worthless and you keep the entire premium.Use shorter period for expiration to take advantage of time decay and give lesser time for the stock to move against you.
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