In the same aggressive approach that sparked inflationary targeting of 2% and additions of monetary stimulus, Japanese Prime Minister Shinzo Abe and fellow lawmakers have unveiled a government budget for fiscal year 2013. Although not eye catching for the most part, the new plan cuts spending for the first time in seven years. This is great for the world’s third largest economy, but the plan could propel the yen higher.
Rebuilding Credibility
As clear as day, today’s announcement seems to be geared at maintaining an adequate credit rating among global ratings agencies. Downgraded in the third quarter of 2011, Japan’s credit rating remains on watch by most recently Standard and Poor’s and Fitch. Both credit watchdogs cited the ballooning deficit and fiscal irresponsibility as drivers in a potential near term ratings cut.
So, in order to bolster a sense of fiscal responsibility, policymakers have proposed a rather aggressive measure that includes $1 trillion in spending for the new fiscal year beginning on April 1st. The plan includes major cuts to tax subsidies lent to local governments, education and government worker compensation. However, spending is widely supported in both social welfare programs and public infrastructure. Both sectors are expected to see 10% and 15% increases, respectively.
The proposed spending cuts are expected to trim excess costs as the government plans to cut back on debt issuance. Issuance of new national debt for the new fiscal year is set to be trimmed by 3%, even as the government continues to service an overall debt load of over 2.3 times GDP.
Yen Positive, Technically
Today’s announcement is fundamentally bullish for the yen as it boosts support for the Japanese economy and its currency – no doubt lending some optimism to a more stable credit outlook. And, given the steepness of the recent move, it is likely that yen bears will use this as an opportunity to pare back positioning ahead of the 91.50 figure.
As a result, traders will continue to eye today’s afternoon close with intent. A close below the 90.56 session low from yesterday will likely open scope for a short term turn lower towards initial support barriers at 89.
The notion can only be negated on a break higher above the 91 round figure.
Rebuilding Credibility
As clear as day, today’s announcement seems to be geared at maintaining an adequate credit rating among global ratings agencies. Downgraded in the third quarter of 2011, Japan’s credit rating remains on watch by most recently Standard and Poor’s and Fitch. Both credit watchdogs cited the ballooning deficit and fiscal irresponsibility as drivers in a potential near term ratings cut.
So, in order to bolster a sense of fiscal responsibility, policymakers have proposed a rather aggressive measure that includes $1 trillion in spending for the new fiscal year beginning on April 1st. The plan includes major cuts to tax subsidies lent to local governments, education and government worker compensation. However, spending is widely supported in both social welfare programs and public infrastructure. Both sectors are expected to see 10% and 15% increases, respectively.
The proposed spending cuts are expected to trim excess costs as the government plans to cut back on debt issuance. Issuance of new national debt for the new fiscal year is set to be trimmed by 3%, even as the government continues to service an overall debt load of over 2.3 times GDP.
Yen Positive, Technically
Today’s announcement is fundamentally bullish for the yen as it boosts support for the Japanese economy and its currency – no doubt lending some optimism to a more stable credit outlook. And, given the steepness of the recent move, it is likely that yen bears will use this as an opportunity to pare back positioning ahead of the 91.50 figure.
As a result, traders will continue to eye today’s afternoon close with intent. A close below the 90.56 session low from yesterday will likely open scope for a short term turn lower towards initial support barriers at 89.
The notion can only be negated on a break higher above the 91 round figure.
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