Japan stimulus: dollar-yen could move lower, says Nick Parsons

Japanese Prime Minister Shinzo Abe's Cabinet approved 13.5 trillion yen (USD 132.04 billion) in fiscal measures on Tuesday as part of efforts to revive the flagging economy, with cash payouts to low-income earners and infrastructure spending.

Even post this news the Japanese and Asian markets were weak. Nick Parsons, Head of Markets Strategy, National Australia Bank says it could be because a few weeks ago, the expectations were around 20 trillion yen. So, now there is a sense of disappointment.

With the financial markets now disappointed with the stimulus package, the dollar yen could move lower and unwound all the gains it made post the UK referendum, when it had broken through levels of 100. Ten days ago it had gone to as high as 107.50 levels and now it has broken the 102 levels.

When asked if he sees some of this stimulus money coming into emerging markets like India, he said it would not enter EMs directly.Below is the verbatim transcript of Nick Parsons' interview to Surabhi Upadhyay. Q: What was announced by the Bank of Japan (BoJ) was exactly what was doing the rounds in the market earlier. It is a stimulus package in excess of USD 260 billion. What do you expect in terms of liquidity flows from here on, not just for Japan but in general other risk assets and emerging markets? A: You are right. This news is coming in but the sense is one of disappointments in markets - remember three weeks ago we were talking or the leaks in the Japanese press was suggesting 10 trillion yen stimulus and then the very next day was 20 trillion stimulus package and then the day after that it was helicopter money. Actually helicopter money has been ruled out and this stimulus package amounts to 13.5 trillion. So it is a bit less than has been talked about some weeks ago. However, if you go through the breakdown of it, there is not a law which seems to be directly supportive of consumption in the very near future. So, if you like it a longer term stimulus package, the size is a little disappointing relative to prior expectations. Q: What does it mean for the yen? We have of course seen little bit of weakness creep in after the announcements today. What do you think is in store? A: It means that dollar yen comes lower; in fact it is just breaking down through the 102 level. However, five weeks ago, the day after the UK referendum vote, dollar yen broke through 100 level for the first time in this cycle and ten days ago we got its high as 107.50 and here we are, we have unwound all of those gains as we speak where 101.95 and looking to head lower, I think dollar yen can go back to retest those lows because there is a real sense of disappointment in financial markets right now. Q: A lot of this easy money that the BoJ is now going to be printing or throwing out helicopter money, call it what you want. Do you see any of it making its way into other emerging markets like India? A: Not directly. The purpose of the stimulus package and the purpose of the talk around helicopter money is to improve sentiment in risk assets and it is certainly the case that India has benefited from that but will this directly lead to further investment as a result of the government's package, are very much doubted.