Fresh fiscal support likely as capital spending weakens

The fiscal support provided by Japan’s government had started to look small compared to other large economies but PM Suga this week hinted that more spending is forthcoming. While the government has indicated that it will first exhaust its COVID-19 reserve fund, that fund was already included in the supplementary budgets earlier this year and won’t move the needle on the overall size of the fiscal response. We think policymakers will instead opt for a genuine increase in fiscal support as early as next month.