The fiscal stimulus drumbeat is getting louder.
A draft document seen by Bloomberg on Thursday shows the total size of Japan’s forthcoming stimulus package is around 26 trillion yen.
More than half of that (around 13.2 trillion yen) is fiscal measures. 9.4 trillion yen will be actual, fresh spending and the package will be funded by an extra budget this fiscal year and next. The size looks to be just shy of 2016’s push.
The idea is obviously to avert a recession in the wake of the tax hike and the typhoon. Analysts expect a sharp GDP contraction this quarter. Bloomberg consensus is for a 2.7% drop.
“We’re lowering our 4Q2019 real GDP tracking estimate to -2.5% qoq annualized, from -1.7%”, Goldman said Wednesday, noting that “October economic activity data came in weaker than we had previously expected in numerous areas, including consumption, production, and exports, reflecting not only the fallback in demand after the consumption tax hike but also the impact of typhoons”.
The bank had already included some additional stimulus (around 4.5 trillion yen from FY2019) in their outlook, and says “the additional measures will have very limited impact on our GDP forecasts at least up to 2020”.
Japan’s economy decelerated in the third quarter. GDP grew at an annualized 0.2% clip in the period, all the way down from a revised 1.8% in Q2. Economists were look for a 0.9% expansion. Goldman thinks the Q3 disappointment will be revised higher.
The extra budget for the current fiscal year will be around 4.3 trillion yen, apparently.
This comes at a time when monetary policy is, by many accounts, exhausted and the external environment is still perilous thanks to the trade wars. Shinzo Abe and Donald Trump managed to strike a somewhat sparse “deal” which the USTR confirmed Wednesday will enter into force on January 1, but that doesn’t do anything to ameliorate Trump’s other battles, which are weighing on the global economy and thereby depressing demand.
The BoJ continues to suggest that more can be done if necessary, but they are, after all, the quintessential example of experimental easing run amok. So, even if there is scope to get even weirder (if you will), it would be strange to suggest Japan has anything close to “ample” room to cut rates or expand asset purchases.
“Bold stimulus from the BOJ has improved our economy and government finances”, Bank of Japan board member Yutaka Harada said, in the text of a speech on Thursday. “Maintaining the current policy and waiting for inflation to pickup is the only choice”, he added.