Japan’s economic stimulus measures, such as lowering interest rates below negative at the start of the year, have not been popular – what’s next for the Japanese economy, and how could this affect global markets and currencies?
The Japanese parliament has approved their state budget at a record figure of 96.72 trillion yen today – the equivalent of 595.92 billion pounds sterling – prompting calls from economic participants to discuss further financial stimulus measures and criticism that spending must increase in order to improve the Japanese economy.
The Bank of Japan is already under pressure to take further steps to improve the country’s finances after disappointing inflation figures released last week showed that inflation remained level throughout February. Much of this is as a result of uncertainty in commodities markets, which have had a significant impact globally, but it is clear from other economic data that the Japanese economy has contracted in the last quarter of 2015, and experts believe that this is likely to show a further reduction in the figures for the first quarter of 2015.
Poor economic data results and today’s announcement of the Japanese budget have prompted speculation about further economic stimulus measures for Japan in the coming fiscal year. The Japanese government has already raised taxes and lowered interest rates to well below negative in a series of unpopular and in some cases unexpected moves to improve the country’s economic status. In 2014, the three percent tax increase took its toll on Japanese consumers and contributed to a recession. Another planned tax rate rise was originally mooted for October 2015, then delayed to April 2017; market commentators are speculating that this may be delayed once again.
According to recent figures from the Financial Times, Japan’s negative interest rates, still set at below -0.15 and unchanged following the last monetary policy committee meeting earlier this month, have led to savings of an annual figure of 80 billion yen, the equivalent of 707 million US dollars.
The Prime Minister of Japan, Shinzo Abe, has a difficult task ahead in balancing the country’s significant public debt with measures designed to increase spending and boost consumption, in order to improve the outlook for the Japanese economy and avoid another recession. In the slow moving global economic climate, he is also mindful of the role Japan has to play, and has stated his intentions to do his part and contribute to the collaboration set out by the G20 to better prepare other countries and help them to manage the risk of any changes to monetary and currency policies that will affect global market participants.
Sudden, drastic policy changes to stimulate flagging economies globally, including raising and dropping interest rates and capping and uncapping world currencies, have come under increased scrutiny in recent months and formed one of the key topics for discussion at last month’s G20 meeting, where representatives of the major global economies warned of the “unintended consequences” – the knock-on effects on global economies and markets – of such measures and how these could be avoided. The G20 made a commitment to greater cooperation and communication when planning to make any radical changes to economic, fiscal and currency policies that are likely to cause notable ripple effects across other global markets and their respective currencies.