Jordan Rochester, Head of FICC Strategy at Mizuho EMEA, discusses Japanese fiscal policy, as the Yen moves onto a sixth straight day of losses, and outlook for the US dollar as a delayed September CPI print shows unexpected cooling.
The yen extended declines on Friday, underperforming its Group-of-10 peers, as Japan’s new leader told the nation’s parliament she would pursue expansive fiscal policy that was strategic and responsible.
The currency slid as much as 0.3% against the dollar, briefly breaking through the 153 level, as Prime Minister Sanae Takaichi pledged to prioritize tackling a cost-of-living crunch and bolstering defense. The yen has lost about 1.5% this week, more than double the amount of any other currency in the G-10 basket.
In her first address in the legislature as prime minister, Takaichi also included a promise to bring forward Japan’s goal of spending 2% of its GDP on defense outlays. While Takaichi’s preference for stimulus has helped Japan’s stock market set fresh record highs, it has weighed on the currency and government bonds.
Long-term Japanese government bonds gained slightly Friday, as Takaichi refrained from mentioning any significant increase in bond issuance. The new finance minister, Satsuki Katayama, earlier signaled that it may be necessary to issue additional debt to fund Takaichi’s upcoming economic package, if existing resources prove insufficient.
“We usually draw from higher-than-expected tax revenues and unspent funds from previous budgets to fund extra budgets,” Katayama said in an interview with a group of reporters Friday. “But if that’s not enough, we’ll have to issue more government bonds — it can’t be helped if it comes to that,” she said.
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