Japan: Token Actions from Policymakers

- The economy is holding up well — "Despite a recent economic slowdown in the major trading partners (i.e. the U.S. and China), economic activity in Japan maintains some resilience. Monthly tracking data indicates that GDP growth in the current quarter will probably be higher than annualized 2%. While consumer spending is apparently being pushed up by the unusually hot weather and a frontloading of auto purchases ahead of the expiration of the government’s subsidy, export and business investment remains on a moderate upward trend."
- The BoJ took a token action — "The BoJ introduced a six-month funding facility at a fixed-rate (0.1%) this week, in addition to the existing three-month facility (¥20tn currently). The fund supply ceiling for the new operation is set at ¥10tn (frequency: once or twice per month, amount of loans provided at each operation: approximately ¥800bn). However, an additional supply of ¥10tn will take 6 months or longer and as such this should be seen as a relatively modest action. The new facility will likely lower term interest rates moderately over time, but its impact of taming upward pressures on the yen will be limited, in our view."
- The government’s economic stimulus package appears half-done — "In tandem with the BoJ’s decision, the government announced an outline of the economic stimulus package. Although the package is dubbed as a foundation for a departure from deflation, we cannot help but think that the contents are rather half-done (or less than that). We believe that the effects are limited both in stimulating activities in the short term and in strengthening economic growth in the longer term."


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