Two elephants leave no room for more fiscal stimulus

The corporation tax cuts agreed by the Cabinet today and the supplementary budget passed at the end of November are simply tinkering at the margin. The mountain of public debt and looming demographic shifts mean that the scope for fiscal policy to support the recovery is now exhausted. Indeed, the next big fiscal move will surely have to be a hike in the consumption tax. Needless to say, this will maintain the pressure on the Bank of Japan to loosen monetary policy even further.