Nobel laureate Paul Krugman said risks of failure are growing for Prime Minister Shinzo Abe’s "Abenomics" campaign to end Japan’s two-decade slump.

“I’m still really, really worried,” Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

Paul Krugman
Paul Krugman
Photographer: Jerome Favre/Bloomberg

Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target, hampered by falling oil prices. The economy is struggling to rebound after a contraction last quarter, while the central bank’s main gauge of inflation fell to zero for a third time this year in July.

“Japan has spent a long time in this deflationary trouble," said Krugman, who helped convince Abe to delay another planned increase in the nation’s sales tax after a hike in April last year pushed the world’s third-biggest economy into a recession.

Japan needs to reach a point where everyone believes that it has pulled out of deflation, he said. "And then if that can be believed, then it may be able to stay out of trouble thereafter,” he said.

Some BOJ officials see a growing likelihood the central bank will lower its inflation outlook and again delay the time frame for reaching its target due to cheaper oil prices, people familiar with the discussions said earlier.

The BOJ should expand its monetary easing program by at least 10 trillion yen ($83 billion), ruling Liberal Democratic Party lawmaker Kozo Yamamoto said in an interview Thursday, adding that its Oct. 30 policy meeting would be a "good opportunity."

For more, read this QuickTake: Abenomics

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