On the announcement that Japan will approve a draft 2015 budget on Wednesday, the yen moves against the dollar.
Volatility for the USDJPY goes into overdrive as traders read the details of the new budgetary plan for Japan, due to be approved on Wednesday this week.
The main points of the plan are as follows:
Spending from April to cover the year will increase to record levels of Y96.3 trillion ($813bn) from Y95.9 trillion
Japan will halve the primary deficit by issuing bonds to reduce the gap between spending and income
A second consumer tax rise will come into effect in October 2015
The draft budget projects tax revenues rising Y4.5 trillion to Y54.5 trillion to cover 57% of the budgetary spending plan, up from 52%
Reductions in social security spending are possible by the summer
A supplementary budget is already in place for public work’s spend and small businesses – this may have to be replaced later in 2015
A reduction in corporate taxes by 3.29% over two years
Cut borrowing for a third year
A cut in bond issuance by 4.4 trillion yen to 36.9 trillion seeing lowest levels in 6 years and the third decrease in a row
The IMF sees Japan’s debt-to-GDP ratio up to more than 245% in 2015, and Bloomberg reported that ‘Moody’s Investors Service cut Japan’s credit rating one level to A1 last month citing uncertainty over whether Japan could achieve its deficit reduction goals.’
Since the announcement over the weekend, USDJPY raised 0.5% in Monday’s trading from opening at 118.219 as the currency pair tries to find stability.
MT4 chart: USDJPY
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