Silver lining to still half-full fiscal war chest

The fact that only around half of Japan’s coronavirus fiscal stimulus funds have actually been spent so far supports our view that government spending hasn’t propped up the economy as much as commonly assumed over the past year. But while that’s contributed to Japan’s recovery lagging that in some other advanced economies – most notably the US – it also means that the government can continue to sharply curb its borrowing without having to tighten fiscal policy much. That bolsters our expectation that the economy will recover more strongly than the consensus expects next year.