Goldman Sachs: Fiscal stimulus & BOJ impact on Japan’s markets

Analysts at Goldman Sachs express their view on the BOJ’s policy outcome as well as on the fiscal stimulus package, while also noting its implications on the Japanese markets.

Key Quotes:

“Our event study of 25 economic stimulus packages since 1990 shows that while the market often rallied in anticipation of a package, it underperformed or declined in the first month post-Cabinet approval in 18 out of 25 occasions” 

“Surprisingly, there was little correlation between the size of actual expenditures and the market's reaction. Given the market's more than 8% rally since July 8, we believe much of the stimulus news has been discounted, and we retain our 12-mo TOPIX target of 1300”

“Therefore, unless the BOJ and/or government deliver significant surprises in the form of monetization or much larger real fiscal spending, we see a decent chance that the market's rally could fade during the next several weeks”