Kuroda Sees No Slowdown in Stimulus After Policy BOJ Review

We disagree. Following the announcement that Prime Minister Abe’s supplementary budget is to be increased to a headline number of 28 trillion yen, the BOJ apparently was reluctant to do any more than the minimum at this time.

About ¥7 trillion yen of the total will consist of actual spending, according to a person familiar with the matter, with the rest being made up of loans and other financing – probably spread over several years. Abe is aiming to expand Japan’s economy by 20 per cent by 2020. With the BOJ’s yearly JGB purchases already more than twice the volume of brand-new financial obligation released by the federal government, Japan has actually already embraced something comparable to helicopter cash, said Etsuro Honda, a previous special adviser to the Cabinet and a vital architect of Abe’s reflationary financial policy. But such growth may not be sustainable, he added. In an economy with a shrinking labor force, this is the only avenue (in the absence of increasing immigration) for raising the current low potential growth rate.

Measures include improved wages for child and elder care workers and support for small-scale companies and low income families.

Economists do not expect this in Japan, but they do see a high chance of mission creep, with the BOJ perhaps committing to buy municipal bonds or debt issued by state-backed entities, giving its interventions more impact than in the treasury bond market, where it is now buying 80 trillion yen a year of Japanese government bonds (JGBs) from financial institutions. It surged 3.2% on Friday and is up 17% for 2016 so far. Panasonic Corp last week partly blamed the strong yen for a fall in quarterly profit. Retail sales were down by 1.4% in June; average household spending similarly declined by 2.2%; and housing starts fell that month for the first time in six months. The ruling Liberal Democratic Party’s candidate failed to win election as Tokyo governor on Sunday and, as head of the party’s local organisation, Ishihara may be forced to take responsibility for the defeat.

But then Abe announced his unexpectedly large spending package two days earlier, which was notably lacking in details on how to fund it. Prominent cabinet ministers promptly piled in with public comments urging the BOJ to follow the government’s lead. He was appointed in January after his predecessor, Akira Amari, resigned over a financial scandal.