Jump-Starting Japan's Economy Will Take $21 Billion, Key Adviser Saysby and
Spending needed to meet government’s GDP target, he says
Trump’s proposed stimulus could boost fiscal policy elsewhere
Japan should add 2.3 trillion yen ($21 billion) in spending to the primary budget for the next fiscal year and in subsequent years to jump-start the economy, said Satoshi Fujii, an adviser to the Cabinet Office.
A boost of this size is needed to meet Prime Minister Shinzo Abe’s goal of a 600 trillion yen economy by 2020, said Fujii. Raising spending in the main budget, instead of a supplementary packages, is more effective because large projects such as infrastructure require sustained spending, he said.
"During deflation, the government’s spending policy, after a time lag, sets the investment posture for the private sector," Fujii said in an interview with Bloomberg News on Wednesday. "So other than expanding government investment and government spending, there’s no way to expand domestic demand."
The focus among policy makers in Japan and around the world is shifting toward fiscal policy after years of unprecedented monetary stimulus met with limited success as a remedy for weak growth.
The Bank of Japan, the most aggressive of global central banks with such monetary easing, in September shifted the focus of its policy framework to controlling interest rates from expanding the money supply. It has signaled that the government must now do more to help achieve inflation and revive the economy.
Asked about the BOJ’s new policy regime, Fujii said monetary policy shouldn’t be evaluated in isolation. The central bank needs the help of expansionary fiscal policy to reach its 2 percent inflation target, and it should continue its monetary easing to support such fiscal policy, he said.
Fujii, a professor at Kyoto University, said spending needs to be targeted to specific projects such as investments in bullet trains, cruise ship ports and power generation. Increasing hydro-power would also reduce energy imports and contribute to growth, he said.
Donald Trump, who has pledged to spend $550 billion on infrastructure, could be a tailwind for fiscal policy in Japan, he said. "A consensus has emerged that in executing fiscal policy, rather than just one country, if multiple countries cooperate it’s more effective," Fujii said.
In August, Abe proposed a stimulus package worth 28 trillion yen, but only about a quarter of that was new spending. Parliament approved it last month.
The economy grew by a surprisingly strong 2.2 percent on an annualized basis in the third quarter, data released this week showed. Fujii said this was due to a drop in imports rather than any pickup in domestic demand.