What's going on?

On Tuesday, the Japanese government approved plans to try to boost the country�s economy by spending a huge amount of money ($275 billion) on things like infrastructure (e.g. building a high-speed railway) � and yet many observers said the measures weren�t bold enough.

What does this mean?

Japan has been mired in a low-growth economic slump for decades. A few years ago, Japan�s Prime Minister instituted a growth program but it has, so far, not been very successful (interestingly, past actions also included increased government spending). Additionally, Japan�s central bank is taking all sorts of extreme actions including negative interest rates – but its efforts aren�t having the desired impact either. The hope is that a big increase in government spending will help the economy grow at a higher rate.

Why should I care?

For markets: Investors were hoping for more.
It sounds like a huge stimulus package, but a lot of it had already been announced and the money will be spent over a number of years (i.e. the impact won�t be immediate). The government�s announcement follows a meeting of the central bank last week at which fewer new measures were announced than expected. In theory, without the support that investors were hoping for, it will be more challenging for Japanese companies to perform well.


The bigger picture: This is what it looks like when a central bank is running out of ammunition.
As we�ve mentioned, some think that central banks (including in Europe and the US) have come close to exhausting the actions they can take to effectively boost economic growth. Japan�s situation reflects that risk and its actions might be foreshadowing what other governments will do: spend money to boost their economies – although, as is often the case, making such political decisions could prove difficult (especially in the US, where passing major new measures through Congress has been particularly challenging in recent years).