JPY: Volatility to increase over the next few weeks - Nomura

FXStreet (Barcelona) - Yujiro Goto, Research Analyst at Nomura believes that the government is going to hike the consumption tax rate as scheduled, but media reports and expected weak GDP growth in Q3 could increase market volatility over the next few weeks.

Key Quotes

“The first flash estimate of Q3 GDP, which will be important for the government’s decision, is scheduled next Monday, and is likely to show a weak recovery after the decline in Q2. Growth is unlikely to be strong enough to stop discussions about the tax hike."

“Market views on the expected impact on USD/JPY after the possible decision to delay the tax hike are divided. Based on the Nikkei Quick equity investor survey, more equity investors view the delay as USD/JPY positive (42%), with the decision viewed as positive for Japanese equities (45%, Figure 1). At the same time, investors view the decision to postpone the tax hike as neutral or negative for JGBs, and if the magnitude of JGB selling accelerates, this could be negative for Japanese equities and USD/JPY.”

“Increasing uncertainty could also push investors to unwind their positions, which may cause USD/JPY selling in the short term.”