Reuters/Adnan1 Abidi
Japan's Cabinet officially approved an economic stimulus package worth over ¥28 trillion ($275 billion) on Tuesday.
This is the latest move by Prime Minister Shinzo Abe to kick start Japan's economy.
The yen surged by as much as 1.6% to 100.72 per dollar in the aftermath of the announcement.
It's important to note, however, that the measures include only ¥ 7.5 trillion ($73.5 billion) in government spending, which will be spread over a number of years.
The rest will be subsidized lending and private sector spending, according to AP's Mari Yamaguchi.
In other words, the headline number exaggerates the actual amount of public spending.
Something else that's notable about the stimulus package is that the figures are essentially the same from Abe's announcement last week — even in light of the Bank of Japan's surprising Friday decision to pursue only a small policy tweak.
"We believe this is a very important turning point for the Japanese fiscal policy that is expected to lead to a substantial Yen depreciation through the deterioration in the balance of payments in the longrun, while lacking the catalyst to terminate the present Yen appreciation in the near term," argued CitiFX Strategy's Osamu Takashima.
"We believe USDJPY could test its July low at 100.0 and cannot find any support before the low in June at 99.0 after the break of it," he continued. "However, we must note that after the additional easing by the central bank and the announcement of the fiscal policy by the government the risk of invocation of the FX policy, or Yen selling intervention, by the [Ministry of Finance] would be increasing."
For what it's worth, former Japanese vice finance minister Eisuke Sakakibara — nicknamed "Mr. Yen" — argued a similar point on Bloomberg on Monday, noting the currency will approach 90 per dollar, which could lead officials to intervene.
Reuters/Adnan1 Abidi
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