Given this scepticism, the spotlight is now shining on fiscal policy. On 2 August, prime minister Shinzo Abe and his cabinet officially approved another fiscal spending package, which amounts to more than Yen 28trn.
This makes it the third largest fiscal stimulus in the country’s history, next to the packages announced in December 2008 and April 2009. However, out of that Yen 28trn, the amount to be spent by the general government is Yen 7.5trn, while the rest will be spent by private enterprises, with incentives. Meanwhile, estimates suggest that the total impact on real GDP is only about 1.3 per cent, and this will be spread over this fiscal year and the next.
For now, I am watching each monthly data point to see if the BoJ has been able to work its magic, or if this is one conjuring act that has passed its sell-by date.
Nandini Ramakrishnan is a global market strategist of JP Morgan Asset Management