Salient to Investors:

Takuji Aida at UBS warned that a higher sales tax could bring the Japanese economy to a grinding halt in 2014 when the first increase will take effect. He raised his growth forecast for the year ending March 2014 to 2.9 percent from 2.2 percent on a $50.4 billion rise in consumption and investment ahead of the tax increase.

Shigeki Morinobu said achieving a primary balance would do nothing more than stem the bleeding and doesn’t start paying back accumulated debt.

OECD predicts Japanese gross public debt will be 223 percent of GDP next year versus projected 214 percent in 2012.

Hiroshi Watanabe at SMBC Nikko Securities said higher taxes will automatically shore up tax revenues even though an accompanying economic slowdown will somewhat reduce the amount collected. He said Japan must raise the consumption tax to 16-17 percent if it wants to eliminate the budget deficit with taxes alone – government simply has to slash spending.

Moody’s Investors Service said Japan won’t eliminate its primary deficit without further reforms, and may reach a tipping point where the market demands a risk premium for Japanese government bonds.

Azusa Kato at BNP Paribas said the upcoming sales tax increase would be a very tiny step forward for Japan’s fiscal reform – need to see an increase in sales tax up to 25 percent just to avoid any further expansion of snowballed debt and avert a jump in bond yields.

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