Japan – consumption tax threatens brittle growth

The Japanese recovery is vulnerable. Confidence deteriorated ahead of April’s consumption tax rise and inflation is eroding modest (if rare) wage increases. The changing structural demands of the jobs market — away from skilled industrial towards services (specifically health) roles — and weak export performance also indicates a manufacturing revival will be difficult to engineer. However, the BoJ will react to downside economic risks and we expect renewed enthusiasm for the weak yen/long stocks trade when this stimulus is finally delivered. We stay short yen and long the Nikkei.

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