Seeking Alpha

Abe to take with one hand and give back with the other

  • Japanese Prime Minister Shinzo Abe will reportedly announce tomorrow that he will go ahead with a planned rise in sales tax to 8% from 5%, but he will also unveil a stimulus package designed to cushion the impact of the increased levy.
  • While the VAT increase is seen raising ¥7.5T for the Treasury, it will spend ¥5-7T on the stimulus measures. Unsurprisingly, there's plenty of noise about the apparent paradox of it all.
  • The package will include tax breaks for companies but not a cut in income tax, as well as investment in public works and cash handouts to those on low incomes.
  • Meanwhile, Japan's real interest rates seem to have dropped below zero, with inflation rising to 0.8% in August and the yield on 10-year bonds dropping to 0.69%. The hope is that bond-holders will look for returns by moving out of bonds and into assets such as stocks, loans, property or overseas assets, a trend that will eventually feed into higher prices and further help the battle against deflation.
  • ETFs - Stocks: EWJ, NKY, EWV, EZJ, ITF, JSC, JPP, DXJ, SCJ, DFJ, FJP, JPNL, JPNS, DXJS. Bonds: JGBT, JGBL, JGBS, JGBD. Currency: FXY, JYN, YCL, YCS
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