World Economy

Asia Stocks Rise as Japan Plans $265b Stimulus Package

Asia Stocks Rise as Japan Plans $265b Stimulus PackageAsia Stocks Rise as Japan Plans $265b Stimulus Package

Asian stocks settled near one-year highs on Wednesday while the safe-haven yen slumped after Japan’s government announced a larger-than-expected economic stimulus package, which led most of the region’s bourses higher.

MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1%, reversing earlier gains, having previously climbed to its highest level since Aug. 11, 2015. It has risen 10% so far this month, Reuters reported.

Japan’s Nikkei rose nearly 2%, leading the region higher. However, mainland China stock indexes bucked the regional rally, falling 2 to 4% in midday trade on worries about regulatory restrictions.

The dollar briefly rose 1.8% versus the yen as speculation about when Abe would announce the package and reports on debt issuance plans buffeted traders. It later pared gains to trade at 105.65 yen, up 1% on the day.

There is a near-consensus view among traders that the Bank of Japan will ease on Friday, most likely by ramping up its already massive purchases of government bonds and riskier assets.

 Reflating Flagging Economy

Japanese Prime Minister Shinzo Abe said on Wednesday his government would compile a stimulus package of more than $265 billion to reflate the flagging economy, media reported, though it is unclear how much will be spent to directly boost growth.

The premier’s 28 trillion yen ($265.30 billion) stimulus package, which exceeds initial estimates of around 20 trillion yen, includes 13 trillion yen in “fiscal measures,” Jiji reported. Those measures are likely to include spending by national and local governments, as well as loan programs.

Abe’s announcement, via a speech in southern Japan, came earlier than expected and pressures the Bank of Japan to match his big spending plan with additional monetary easing at its closely-watched rate review ending on Friday.

“The amount is so large that the stimulus package is bound to have a big economic impact. It is impossible to spend this much money in one extra budget, so this may take place over the next few years,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“The BoJ is likely to ease policy, including increasing government debt purchases, so you could say the BoJ can absorb the new debt. It also makes it easier to show that the BoJ and the government are working together.”

Details of the package will be announced by the government next week, Abe was quoted by Jiji as saying.

Many central bank policymakers prefer to put off taking action as they expect the anticipated fiscal stimulus package, and a delay in implementing the next sales tax hike, to boost growth and brighten the prospects for hitting their 2% inflation target.

But yen moves and political considerations could be decisive factors for BoJ policymakers agonizing over whether to expand stimulus yet again or to save their dwindling policy resources for when the economy takes a turn for the worse.