Prospects of another large economic stimulus package - Nomura

Analysts at Nomura explained that the economic stimulus package approved by the Cabinet in August totaled ¥28trn, more than had been expected.

Key Quotes:

"The reasons for the size of the package were probably the strength of the yen in the first half of 2016 and serious concerns about the impact of Brexit on financial markets and the economy. 

We expect the economy to begin to slow gradually in FY17 H2 as the impact of existing economic stimulus packages begins to fade. However, with the economy unlikely to slow to below its potential growth rate, we do not expect a large economic stimulus package in FY17."

"That said, in view of the many imponderables, we cannot rule out the possibility that concerns similar to those of this summer may reappear. In our view, such concerns are more likely to be triggered by developments overseas than in Japan.

If President-elect Trump's trade policies turn out to be protectionist, we see a risk that the new administration could favor a weaker dollar and try to pressurize countries with a trade surplus into stimulating domestic demand. 

Also, we will need to monitor US behavior at G7 and G20 meetings as well as look out for the US Treasury's Semiannual Report on International Economic and Exchange Rate Policies. Similarly, election victories for protectionist political parties in Europe could trigger the risk-off trade (ie, flows into yen and out of stock markets), which could have a negative knock-on effect on the Japanese economy via its impact on financial markets. 

If such risks materialized, the likelihood of fiscal expansion would increase."