Yesterday the Japanese government unveiled the details of the additional budget package meant to stimulate the ailing economy. After Prime Minister Abe had mulled a JPY 28 trillion stimulus, the actual package underwhelmed market expectations – most of the package is a rebranding of previous programmes, and the add-on is less than JPY 5 trillion. For the market, this is insufficient to stimulate the economy but seemingly too much to leave yields where they are, Julius Baer’sHead Fixed Income Research Markus Allenspach comments
“As a matter of fact, the result of yesterday’s auction of Japanese government bonds was disappointing, and the yield of the benchmark 10-year Japanese government bond rose to -0.09% from -0.2% on Friday and -0.3% on Thursday,” he notes.
Prime Minister Abe’s fiscal initiative might not kick-start the Japanese economy but we take it as an indication where global economic policy is heading to. As monetary policy options seem exhausted, the focus clearly shifts to fiscal stimulus.