The Japanese parliament approved a record budget of ¥96.34 trillion to enhance economic growth.
In Wednesday’s trading session, Abe Shinzo, Japan’s prime minister, swung the cabinet in his favour to approve a record account budget for 2015-16. His aim is to grow the economy to save Japan from deflation.
On the news the yen strengthened against the US dollar, gaining 0.9% as the USDJPY fell overnight more than 100 pips; now trading at 116.90.
MT4 chart: USDJPY
The key goal of the plan is to halve the ratio of the primary deficit. But the 2015 budget allowance for public spending is now at a record-high of ¥72.89 trillion, up ¥2.79 trillion for 2014. This expense will be met by ¥54.53 trillion from central government’s tax revenue, the highest in 24 years, as the government put pressure on business to grow with the economy and put more back. The second bout of consumption tax, postponed for 18 months and due to be initiated in October 2015, will add to the income Japan needs for fiscal rehabilitation. It is hoped that these measures will achieve a reduction in the primary balance of more than ¥4 trillion to ¥13.4 trillion in 2015.
Additionally, the Japanese government will issue bonds but the amount is limited to ¥36.86 trillion, which is ¥4.39 trillion less than allocated in 2014. However, the selling of bonds will still meet 38.3% of the spending plan.
By implementing the budget plan on all levels, the government aims to reduce the deficit so that it does not have to borrow more to finance government spending. Currently, public debt stands at more than 200 percent of GDP with central government debt reaching highs of ¥1,000 trillion.
The forecast from the Japanese cabinet is that economic growth will hit 2.7% in 2015, and that the balance will see a surplus by 2020.
Investors reacted by selling on the Japan225 [Nikkei] taking the index down 220 points and closing trading at 16722.50.
MT4 chart: Japan225
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