The yen eased against the dollar on Wednesday after Japan unveiled a surprisingly large $265 billion stimulus package, while United States equity markets pared early gains as investors awaited the end of two-day meeting of Federal Reserve policymakers.
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Abe’s announcement of the package boosted Japanese stocks on Wednesday and reinforced market expectations that the BOJ will match fiscal stimulus with another dose of monetary expansion.
Direct fiscal spending would be only around 7 trillion yen, just a quarter of the total package, the sources said, which could disappoint some market players expecting bigger outlays.
“The prime minister’s message was powerful”.
While it is not expected to make any major announcements its post-meeting statement will be pored over for clues about policy following a run of strong data that have fanned talk of an interest rate rise.
Details of the package will be announced by the government next week, Abe was quoted by Jiji as saying. Expectations of further stimulus in Japan has dominated trading for the past few weeks and eclipsed attention paid to the USA central bank’s statement on Wednesday, when the Fed was seen as indicating that a September rate increase was possible, but not necessarily likely.
Yen moves and political considerations could be decisive factors for the BOJ, which would prefer to conserve its policy resources in case the Japanese economy takes a turn for the worse.
“Market pricing has never been so certain of more easing, so if the BOJ doesn’t act, it’ll be a really big disappointment”, Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities, told Bloomberg News.
The Fed’s statement was broadly constructive about the economy and it was notable the absence of any mention of global risks, said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts.
“This is not a very meaningful number”, Martin Schulz, senior research fellow at the Fujitsu Research Institute in Tokyo, said of the whopping 28 trillion yen figure.
“It adds up all sorts of existing and additional incentives and credit guarantees for infrastructure programs that stretch out over years and do not result in immediate spending”.
Such “fiscal spending” appeared to have increased to 13 trillion yen.
Japan’s Nikkei stock average rose almost 2 percent on the larger-than-expected stimulus package, while the yen slumped against the dollar.
Japan’s finance ministry denied a media report it was considering issuing 50-year government bonds for the first time to capitalise on ultra-low interest rates.
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“We must support domestic demand and put the economic recovery on an even firmer footing”, Mr. Abe said in the comments broadcast Wednesday. The government needs to kick deflation to the curb and revive the economy by then, an achievement that depends on whether the new stimulus package can reignite Abenomics.
