Open trading account 
Over the next few weeks, the big question for the Bank of Japan, Nikkei, Japanese Yen and JGB traders is the amount of damage that the consumption tax hike had on the economy. One would naturally assume that after spending strongly in March in the lead up to the April 1 tax hike, demand would retreat aggressively in April and May. This possibility would deter business activity and investment as companies in Japan wait to see how much drag the tax had on the economy.
However based on the initial readings, Japanese companies are looking beyond the tax hike and increasing their capital investments. The 19.1% monthly increase in machine orders in March was the largest rise since 1996. In the month of May, manufacturing activity also improved with the PMI index closing in on the neutral 50 level plus small business confidence also improved this month, which is encouraging because they are the most sensitive to the fluctuations in the economy. Together, these improvements reinforce the Bank of Japan’s confidence in the economy and suggest that the impact of the consumption tax will be limited.
However based on the initial readings, Japanese companies are looking beyond the tax hike and increasing their capital investments. The 19.1% monthly increase in machine orders in March was the largest rise since 1996. In the month of May, manufacturing activity also improved with the PMI index closing in on the neutral 50 level plus small business confidence also improved this month, which is encouraging because they are the most sensitive to the fluctuations in the economy. Together, these improvements reinforce the Bank of Japan’s confidence in the economy and suggest that the impact of the consumption tax will be limited.
