The Japanese government was reportedly planning a direct fiscal spending of about 7 trillion yen to help fund an economic stimulus package valuing over 28 trillion yen, according to sources.
Further, the said amount appears to be a quarter of the total package, which might disappoint some investors that covers bigger outlays given the possible headline figure, valuing over 5 percent of gross domestic product.
The total package also includes 6 trillion yen for a fiscal loan and investment program to help lift private-sector spending that will be shed for construction of a “maglev” train line and is to be approved by Prime Minister Shinzo Abe’s cabinet. Given that decisions aren’t final, they have discussed the condition of anonymity.
The residual 15 trillion yen will mainly come from quasi-government financial institutions that provide loans, including loan guarantees and subsidies to private-sector firms.
"The actual impact on economic growth is bound to be smaller, with the kick from extra spending likely to be weaker and spread out over several years," Frederic Neumann, Co-head of Asian Economics Research at HSBC, said in his report.
"At the margin, of course, the surprise fiscal announcement will put a bit of extra pressure on the Bank of Japan to deliver tomorrow."
As the BOJ tries to expand stimulus this week, political pressure is escalating. The minister called the banks’ attention to work with the government in order to lift economic growth, after announcing a bigger-than-expected fiscal spending package.
Several policymakers at BOJ are in favor to hold off on easing, citing worries over the rallying costs and shrinking returns of an already massive asset-buying program that dries up bond market liquidity.
Japan Economy Minister Calls BOJ
To aid the economy, the government and the Bank of Japan must collaborate. Japan’s economy minister was quoted as saying in the wake of premier Abe’s announcement of a bigger-than-expected fiscal spending package.
“The prime minister’s message was powerful. I think people at the BOJ will take into that account and make an appropriate decision,” Economy Minister Nobuteru Ishihara said in a television appearance on Wednesday evening, the Kyodo news agency reported.
“I think (BOJ Governor Haruhiko) Kuroda understands that the world is watching” the bank’s policy response, Ishihara said – just hours after Abe revealed the massive scale of the new stimulus campaign.
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