Japan unveils $265bn 'aeroplane money' stimulus; will it help?

Japanese Prime Minister Shinzo Abe today announced his government would compile a 28 trillion yen (USD 265 billion) fiscal package, including stimulus measures such increased government spending and loan programs.In an interview to CNBC-TV18, Michael Every of Rabobank said that velocity of money will be as important as the quantum of spending announced and that for the stimulus to be effective, the Japanese government should go out and spend."Do they actually have projects ready to spend that much money on over the next 12 months, if they don’t it is a paper figure and the bureaucrats who just sit there for ages working on how to spend it and it does nothing to the real economy," he asked.Terming it as "aeroplane paper money" as opposed to the helicopter money term that is increasingly being used for ballooning government spending, Every said that in the short term, it could push down the yen and boost Japanese equities.Geoff Lewis of Manulife Asset Management said the government should coordinate its fiscal stimulus with monetary stimulus expected from the Bank of Japan Friday."But at least we are moving away from this emphasis on fiscal austerity combined with monetary expansion," he said.Below is the verbatim transcript of Michael Every and Geoff Lewis’ interview to Latha Venkatesh, Reema Tendulkar and Nigel D’Souza on CNBC-TV18.Latha: How have you read this, is it good enough to give a further boost to both the Nikkei and to other Asian stocks.Every: We will probably get a short term boost because if the stimulus is as is same and is rolled out rapidly, which is questionable because you have to think do they actually have projects ready to spend that much money on over the next 12 months, if they don’t it is a paper figure and the bureaucrats who just sit there for ages working on how to spend it and it does nothing to the real economy, but with that caveat if it is ready to go then yes short term that pushes down the yen, short term that pushes up the Nikkei.I do think it is interesting because Japan has sworn the line they won’t do helicopter money which is basically the central bank financing government spending or government deficit spending, this I guess wouldn’t qualify as helicopter money but is probably paper aeroplane money if you will and when moving in that kind of general direction they are just choosing to call it something else, but until we get a firm pledge or at least a nudge nudge, wink wink from Japan that they are going to be increasing the fiscal deficit continuously going forward and that will be supported by Bank of Japan (BoJ) until we cross that rubicon really or we get a short term blips in the currency and a short term blips in the stock market.Reema: What about a coordinated effort. Do you think Bank of Japan is likely to join Shinzo Abe and announce monetary stimulus as well, because all the past measures taken by Japan have not really helped in reviving the economy. Now if you get a combination of a fiscal as well as the monetary stimulus at the same time and this coordinated effort, do you think is enough to revive the Japanese economy.Every: No, not unless it is sustained as I just said and they are already buying a ludicrous quantity of Japanese Government Bond (JGB) every month. I do think they will probably have to further tweak the policy they have got increase the buying from a ludicrous to a ridiculous level and at the same time possibly play around with the negative interest rate that they have got, maybe in terms of how that passed through to the banking sector and on to businesses and consumers for example.But unless there is a pledge to make this a sustained effort all we are looking at again is a one year and then we go back to normal again. It won’t permanently changed the equation until people see that you have got fiscal policy and monetary policy lined up permanently rather than just the 12 month, I mean if 12 month from now the government says okay now we have to start raising taxes again in order to try and balance the books what you have achieved, absolutely nothing.Nigel: We are just getting this news in terms of some stimulus at least coming in, is it enough or are you expecting some backup to come in from the Bank of Japan later this week and what’s your reading?Lewis: I think it is good news that we are seeing movement on the financial front though I agree with the comments of the earlier speaker this should be coordinated, it should be on greater scale, but of course it is impossible to reach those kinds of agreements, but at least we are moving away from this emphasis on fiscal austerity combined with monetary expansion. We will get into towards the limit of monetary expansion, so I think is good news Japan is going it alone, but also we will see more reliance on fiscal policy whoever wins the next US election.We are already seeing the ditching of austerity by the new government in the UK, so I think politicians are finally waking up that when interest rates are so low, when there is a big deficiency in global demand it makes no sense just to use the monetary policy lever. When I used to work at the UK Treasury, we always looked at the monetary policy, fiscal policy mix. We discussed things with the Bank of England, which didn’t act in isolation so this is good news.Latha: The global equity market risk assets almost since February have been having an uninterrupted rally and it has only picked up in the last 4 or 5 weeks. Do you think now we are going to see further highs in all risk assets, the Wall Street indices touching new highs, Emerging Markets (EM) indices like us for instance the Nifty is just within shouting distance from that 9,100 mark that it touched couple of years ago. Do you think now all risk assets will head towards new highs?Lewis: Well, I don’t think it is going to be off to the races. Our thinking has always been the global economy will show some improvement, the US will get back on to its feet and that returns in 2016 would tend to be backend loaded, so they are coming sooner than we thought which is a little bit surprising, but it is the direction that we had anticipated. There are conditions for big rally.It is not going to be off to the races with the market, I don’t think but the economic news has picked up to the economic surprised indices to the G10 economies and now well into positive territory. Monetary policy still remains very, very accommodative so I think the background is improving for risk assets and that has been reflected in markets. So I think it is a rationale response, but I don’t it is the start of a big bull market.