Japan: Another Huge Fiscal Package is Set to be Announced - Westpac
Robert Rennie, Research Analyst at Westpac, notes that after weeks of various “sourced” news articles on whether the planned sales tax increase would be pushed back, Abe announced the tax would be delayed by two and a half years to Oct 2019.
Key Quotes
“Another huge fiscal package is set to be announced too, which would see the budget deteriorate further. There are three areas we need to watch as a result of this. Firstly ratings agencies’ response to the fiscal event, if any (positive for near term expenditure and growth/ negative inflation/ negative budget). Secondly, the BoJ’s reaction given questions over the limits of monetary policy. Thirdly the market’s reaction.
Kuroda has no formal speaking engagements ahead of the June 16 meeting, so we will have to wait until then to gauge feedback. It doesn’t take a huge stretch of the imagination to argue that the BoJ will be disappointed by these developments. Body language at G7 did not suggest that Japan was particularly happy with the US stance on the ¥ either. Having toyed with a buy bias last week, we flip back to firmly neutral bias this week. We also revise our 1 month forecast back to 109.”
