Japan: Fiscal expansion near full employment – Nomura

There have been proposals to expand the US tax cuts implemented in December 2017 and not only in the US, but in Japan and the Eurozone too we have seen signs of a tilt towards expansionary fiscal policy, points out the research team at Nomura.

Key Quotes

“We think it is hard to understand that industrialized economies are choosing to implement expansionary policy at a time when conditions are close to full employment.”

“One reason for justifying fiscal expansion under near full employment conditions is to resolve issues that have built up as a result of unconventional monetary policies, in particular addressing supply-side reforms such as increasing productivity.”

“In Japan, the Council on Economic and Fiscal Policy has been drawing up new fiscal consolidation targets as part of its plans for integrated economic and fiscal reforms due out in June. One topic for discussion by the council is increasing fiscal spending in order to counter a fallback in demand after the consumption tax hike scheduled for October 2019 and after the Tokyo Olympics and Paralympics in September 2020.”

“Given the recent yen appreciation and unstable domestic political situation, we think that there could be increased calls for additional easing measures on the monetary policy front too in tandem with such pressure for fiscal expansion. We think that such moves could have an even more negative effect on the preservation of confidence in longer-term fiscal policy and government debt.”