FXstreet.com (Barcelona) - Japanese Prime Minister Shinzo Abe
made his biggest push to date to iron out jobs growth as part of
the Bank of Japan's mandate as his government approved $117 billion
of spending to revive the economy in the biggest stimulus since the
According to estimates, under intense pressure from Abe, the BOJ
will likely adopt a 2% inflation target at its January 21-22 rate
review - a rate that is double its current goal - and consider
easing monetary policy again, most likely by increasing government
debt and asset purchases.
Japan's current account, which is normally in surplus, reversed to
a rare and gargantuan-sized deficit in November, which ultimately
helped push the yen to a 2.5 year low against its American
equivalent and highlighted the need to bolster the economy as
Abe's recipe to allay Japan's woes from years of deflation is big
fiscal spending and central bank purchases of government debt,
however there are risks as the country's debt burden is already the
worst among major economies.
"Bold monetary easing is essential in beating deflation and a
strong yen," Abe said as he unveiled direct spending worth 10.3
trillion yen ($117 billion) on public works, incentives for
corporate investment and financial aid for small firms. Taken
together with spending by local governments and private-sector
firms, the size of the entire package was 20.2 trillion yen,
according to government officials. The government expects the
stimulus to raise real economic growth by +2.0% and create 600,000
However, Abe also wishes to promote a sense of flexibility, as the
aggressive monetary policy will end almost 20 years of deflation a
top priority after his Liberal Democratic Party (
) won elections last month. In an interview with the Nikkei
newspaper on Friday, he repeated his calls for the BOJ to add job
growth to its mandate like the U.S. Federal Reserve, which is the
only major central bank that commits to boosting job growth as well
as keeping inflation in check.
The BOJ is strongly opposed to adding job growth to its mandate for
fear of binding its hands on future policy, although it may accept
a phrase in the statement that creating more jobs would be a shared
objective with the government, said sources with knowledge of the
negotiations on the statement.
"I think the BOJ can respond to Abe's calls on employment within
the existing framework of the BOJ Law by placing a little more
emphasis on employment in its forecasts," said Hiroshi Miyazaki,
chief economist at Shinkin Asset Management in Tokyo.
Consequently, the USD/JPY continued its upward march Friday through
the 89.00 handle for the first time since July 2010. Moreover,
Japan's trade balance for November chalked up yet another deficit,
and now the current account (unadjusted) has slipped below the line
too. "Both deficits were wider than expected triggering a brief
additional round of yen selling." noted Research Analyst Gareth
Berry at UBS.