Japan Promises $45 Billion Stimulus, but Will it Actually Happen?

abeJapanThe difference between Abe’s constant stimulus headlines and the actual amount injected into Japan’s beleaguered economy is often quite striking.

Overnight, Japanese Prime Minister Shinzo Abe announced a $45 billion stimulus package, as the ultimate dovish regulator continues to funnel money into every sector imaginable. However, the expectations vs. reality of Abe’s measures tend to differ greatly.

From the Financial Times:

Although Mr Abe proclaimed a total package of ¥28.1tn, the actual new government spending is ¥6.2tn, of which ¥4.6tn — 0.9 per cent of gross domestic product — will fall in the current fiscal year.

We also don’t know what the funds will be used on:

Few precise details are available — the package contains a laundry list of measures for ministries to spell out later — but the welfare spending is expected to include childcare subsidies and a payment of ¥15,000 ($147) each for 22m low-income individuals.

And as this chart shows, only a small percentage of the announced stimulus tends to actually make it out into the economy:

japan-stimulus-actual-vs-announced
Chart: FT

The prevailing message is to take this and all Japanese stimulus announcements with a grain of salt. Both their effectiveness and their actual amounts vary wildly, and we don’t know if or when they’ll have an impact — if any — on the economy.

Japan’s stock market didn’t react well to the news, with the benchmark Nikkei 225 falling 1.5%, led lower by especially weak share price performance in the energy, financials, and consumer discretionary sectors.

The iShares MSCI Japan ETF (NYSE:EWJ) fell to $11.96 in premarket trading Tuesday, down $0.15 (-1.24%). The EWJ, which is the most popular way for U.S. investors to gain exposure to broad Japanese stock indexes, has fallen 0.17% year-to-date, compared with a 6.4% gain in the S&P 500.

EWJ-2016-08-02

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