Research Team at BBH, notes that the talks emerged last week that the Abe government has decided to postpone the sales tax increase, which has already been postponed, was to be implemented April 2017.
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“The formal announcement would be announced at the May G7 meeting that Japan hosts. Although Abe is driven by domestic considerations, he can tell the G7 that Japan is doing it in the spirit of cooperation following the G20 meeting. However other reports contradict this claims and suggest the bar to postponing the sales tax increase again is high.
Japan’s problems would not be solved if the yen’s gains in Q1 were reversed. However, a resumption of the yen’s uptrend would aggravate its problems. The channel here is not so much exports. Given how much the media and some analysts harp on exports, one can be forgiven for not appreciating that Japan only exports about 15% of GDP, roughly the same as the US, and less than half of Germany and some other European countries.
The yen’s appreciation translates into less foreign earnings for Japanese multinationals. MOF data suggests that sales by Japanese companies abroad surpassed exports for than 15 years ago. Japan’s current surplus is driven by the investment income, not the trade balance. The yen’s appreciation depresses the value of those royalties, licensing fees, profits, dividends and coupon payments earned abroad.”
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