Economists are divided over how much good Prime Minister Shinzo Abe’s new stimulus package will do in terms of sparking extra growth, but there’s one thing they do seem to agree on: The Bank of Japan is off the hook for now.
The package announced Thursday includes ¥13.2 trillion of public funds to support an economy that’s forecast to shrink this quarter. But the precise time frame for that extra spending isn’t clear.
On the bullish side, economist Chotaro Morita at SMBC Nikko Securities said the package could help the economy grow by more than 1.5 percent next fiscal year. More pessimistically, Pantheon Macroeconomics’ Freya Beamish says the stimulus won’t come quickly enough to prevent the economy from falling into a technical recession.
What is clearer is that the BOJ now has more breathing space to keep its easing on hold. The bank has already bought assets worth more than the nation’s entire economy to try to support growth and inflation, and the side effects of those policies are weighing on the banking sector. It only wants to take further action if it’s absolutely necessary.
Even before the government’s stimulus figures were finalized, JPMorgan Chase & Co. started telling clients they should no longer expect the BOJ to ease this month, or anytime next year. Barclays went further, saying the bank will now probably hold fire to the end of March 2022.
For some economists the package reflects rising awareness around the world that more fiscal help is needed to maintain growth. Governments can no longer leave it to central banks to do all the heavy lifting.
“We have argued that fiscal policy is likely to play a dominant role in economic policy, supplanting monetary policy,” wrote Goldman Sachs economist Naohiko Baba, a former BOJ official, after the stimulus announcement. “And we believe that this economic stimulus package confirms that the government is moving in this direction.”