Japan Needs Hundreds of Billions More in Stimulus, Lawmaker Says

Japan needs to double the nearly $700 billion it’s already budgeted in extra spending to ensure a recovery from the pandemic, says an influential ruling party lawmaker who helped shape the country’s economic strategy.

Kozo Yamamoto, who played a key role in crafting the fiscal and monetary framework known as Abenomics and is readying new proposals for Prime Minister Yoshihide Suga, says Japan needs another big dose of fiscal medicine that’s as ambitious as the aid bill just passed in the U.S.

He says the Bank of Japan can’t do much more by itself, even as investors obsess over what the bank might deliver at a policy review next week.

“We need to make a bold move along the lines of what the U.S. is doing,” Yamamoto said in an interview this week. “Some people are in dire circumstances.”

Japan Needs Hundreds of Billions More in Stimulus, Lawmaker Says

The 72-year-old lawmaker’s call to action comes with the economy forecast to grow at only half the pace of the U.S. this year. Renewed restrictions to contain the virus have thrown Japan’s recovery into what is seen as a temporary reverse this quarter.

Japan compiled three extra budgets worth about 73 trillion yen ($671 billion) last year to deal with the virus and support the economy. Yamamoto says another extra budget matching that total is needed immediately for the year starting in April.

Like most economists, Yamamoto sees no game-changer emerging from the BOJ’s policy review next week. Whatever tweaks the BOJ does introduce, he says the policies can’t make a bigger impact without more bonds to buy, which is one reason why more government spending is so important.

Fresh spending and the debt issued to pay for it would help fuel the bank’s easing campaign and have a beneficial impact on Japan’s currency and stocks, according to Yamamoto’s argument.

He and a group of ruling party lawmakers have been meeting with former Prime Minister Shinzo Abe, Suga’s old boss, to come up with recommendations for the current administration on how it should steer the post-pandemic economy. As it is, the focus on things like cutting the cost of mobile phone service and making fertility treatments availability to women is too granular, Yamamoto said.

Instead, he wants to see Suga reaffirm a commitment to supporting monetary policy and getting inflation up to the BOJ’s 2% target, which was a central goal of Abenomics.

“Suga is too micro-oriented,” Yamamoto said. When he became premier, “I voiced my concern about his lack of macro-economic policies, and my concerns have turned out to be warranted.”

Yamamoto also said:
  • With reflationist Asahi Noguchi next month joining the BOJ’s policy board, the nine-member board will include four strong proponents of stimulus, which “shows that monetary policy will remain in an easing mode.”
  • The BOJ’s buying stock funds shouldn’t be allowed to affect the market’s normal functioning. But right now the BOJ doesn’t have a choice, except to keep buying bit by bit and holding until inflation nears 2% and the economy gets overheated.
  • Whoever succeeds BOJ Governor Haruhiko Kuroda should be willing to do more quantitative easing in cooperation with government spending.

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