The Financial Express (Delhi Edition)
JAPAN PLANS $265-BN ECONOMIC STIMULUS
Package to contain 13-trn yen in ‘fiscal measures’; yen plunges the most
JAPAN’S prime minister Shinzo Abe unveiled a surprisingly large $265 billion stimulus package on Wednesday to reflate the world’s third-largest economy, adding pressure on the central bank to match the measures with monetary stimulus later this week.
The earlier-than-expected announcement to boost the flagging economy sent Japanese and other Asian stock markets higher while it weighed on the safe-haven yen, but lacked crucial details on how much of the package would be direct government spending.
Thesizeof thepackage,atmore than 28 trillion yen ($265.30 billion), exceeds initial estimates of around 20 trillion yen and is nearly 6% the size of Japan’s economy. It will consist of 13 trillion yen in “fiscal measures,” which likely includesspendingbynationaland local governments, as well as loan programme.
“We need to take steps to support domestic demand and put the economy on a firmer recovery path,” Abe said in a speech in souther n Japan on Wednesday. “I want to use various measures to increase our escape velocity from deflation.”
ThemarketexpectstheBankof Japan to produce some fire power of its own at its rate review ending on Friday.
“Theamountissolargethatthe stimuluspackageisboundtohave abigeconomicimpact.Itisimpossible to spend this much money in one extra budget, so this may take place over the next few years,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
“The BOJ is likely to ease policy, including increasing government debt purchases, so you could say the BOJ can absorb the new debt. It also makes it easier to showthattheBOJandthegovernment are working together.”
Many BOJ policymakers prefer to hold off on easing as they expectthefiscalstimuluspackageto boost growth and brighten the prospects for hitting their 2% inflation target.
Butyenmovesandpoliticalconsiderations could be decisive factors for the BOJ policymakers agonising over whether to expand stimulusortosavetheirdwindling policyresourcesforwhentheeconomy takes a turn for the worse.
Japan’s Nikkei stock average rose nearly 2% on the larger-thanexpected stimulus package, while theyenslumpedagainstthedollar. Abe ordered his gover nment earlier this month to craft a stimulus plan to revive an economy dogged by weak consumption, despite three years of his “Abenomics” mix of hyper-easy monetary policy, big spending and structural refor ms. Reuters
We need to take steps to support domestic demand and put the economy on a firmer recovery path.