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For decades economists and investors have been questioning the sustainability of Japan’s government debt burden.  The announcement from PM Abe of a stunningly large stimulus package worth around 20% of GDP has clearly refocused attention back on how easily the government will fund this, per Rabobank.

Key quotes

“Reuters this week reported that Japan will boost government bond issuance by USD149 bln to fund the latest stimulus package. In light of this, it seems almost impossible to imagine the BoJ ratcheting down its purchasing programme.”

“According to S&P ‘within the next one to two years, Japan will return to a fiscal trajectory that stabilises or improves its government debt level relative to GDP.’  It would appear that the market will continue to absorb the news, a truly huge stimulus package almost without blinking.”

“The stimulus package is unlikely to avert a recession, though clearly it will soften the blow.  Over the next month or two at least economic data can be expected to wield some disastrous news.”  

“While the USD looks set to outperform the JPY on any worsening of risk appetite, we see further downside potential for EUR/JPY on a 3-month view towards 113.4.”