We still think that the impact of October’s sales tax hike on consumption will be smaller than after previous tax hikes. But the outlook for external demand remains poor and firms have become less optimistic about the outlook for capital spending. We reiterate our forecast of a 0.2% fall in GDP in 2020. Amid mounting concerns over the impact of loose policy on the health of banks, we suspect that the Bank of Japan will refrain from cutting its short-term policy rate deeper into negative territory.
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