Japan announces massive stimulus package

• Japan announces massive stimulus package

• Actions aimed at supporting exports and contending fallout of sales tax hike

• Fiscal stimulus gives BoJ some breathing space

Prime Minister of Japan, Shinzo Abe, announced a massive stimulus package. According to the draft seen by Bloomberg, the package amounts to around 26 trillion JPY ($239 billion) and about a half of the figure will come from fiscal measures. 9.4 trillion yen will come from fresh local and central government spending with central government being responsible for 7.6 trillion yen. The remaining part will come from private sector partnerships. Stimulus will be spread over a few years and is aimed at achieving three objectives:

• Protecting against downside economic risks

• Preparing country for longer-term growth after 2020 Tokyo Olympics

• Aid disaster relief

When it comes to the first two objectives, Japan wants to support exports and contend the fallout of the recent sales tax hike. It should be noted that the previous sales tax hike was followed by a collapse in consumer spending. Given that the Japanese GDP growth slowed to just 0.1% QoQ in Q3, risk of a recession in the final quarter of 2019 is quite high. Stimulus package is expected to boost Japan’s real GDP growth by around 1.4 percentage points. However, the announcement was viewed as a slight disappointment. Indeed, the announced package was bigger-than-expected but market participants hoped for a fresh spending in double-digit trillions. Nevertheless, the Bank of Japan can be seen as a winner as propping up fiscal stimulus allows it to put additional monetary easing aside for now.

Japanese GDP growth has been slowing considerably this year. The country barely avoided stagnation in the third quarter of 2019. However, typhoon that hit Japan in October along with sales tax hike is expected to push the country into recession in Q4 2019. Source: Bloomberg