Krugman Calls for Higher Japan Inflation Target, Fiscal Boost

  • Says Bank of Japan’s current target of 2% should be doubled
  • Nobel laureate has been influential in Japan’s policy debate

Japan should raise its inflation target to 4 percent and embark on a large but temporary fiscal stimulus to boost prices in the economy, Nobel laureate Paul Krugman said.

Speaking at a conference on Thursday in Singapore, Krugman called for “a big burst of government spending and maybe also cash donations,” though authorities don’t necessarily need to adopt a strategy that involves “helicopter” money, he said.

“Japan needs to get that inflation rate convincingly high,” Krugman said, adding that worrying about the “longer-term budget outlook needs to be put on hold.” The Bank of Japan’s current target is 2 percent and consumer prices excluding fresh food, a key benchmark for the BOJ, have fallen for three straight months.

Krugman’s comments add to an intensifying policy debate in Japan as the nation struggles to spur inflation and deliver consistent economic growth. With the central bank set to meet later this month to consider its monetary program and Prime Minister Shinzo Abe’s government planning a fiscal stimulus package, experts at home and abroad have been offering their views.

To read about Ben S. Bernanke’s foray into Japanese economics, click here

Among recent efforts to reinvigorate prices and growth: the BOJ this year introduced negative interest rates, Abe last month said he’d delay a planned sales-tax hike, and people familiar with discussions in Tokyo indicate the government’s fiscal package may be about 10 trillion yen ($94 billion).  

Inflation Target

The current inflation target may be limiting the success of the central bank’s monetary easing, Krugman said. While BOJ Governor Haruhiko Kuroda had managed to produce a large change in inflation expectations, a depreciation in the yen and a rise in stock prices, the economic boost was not significant enough, he said.

Krugman praised Abe for taking risks in trying to stimulate the economy.

“There are lots of things I would disagree with him violently on but on economic policy, he has been more venturous and more determined than anyone else in a comparable position in the world,” he said. “Japan has been, unfortunately, not enough, a beacon of activist policy at a time when everyone else in the advanced world seems to be falling really very, very far short.”

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