Japan PM Abe adviser says
govt should consider more fiscal stimulus
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[October 26, 2016]
By Kaori Kaneko and Sumio Ito
(Reuters) - Japan should consider more government spending to maximize
the impact of monetary policy, an adviser to Prime Minister Shinzo Abe
said on Wednesday, indicating a shift in emphasis to fiscal from
Koichi Hamada, long known as a "reflationist" keen to have the Bank of
Japan flood the economy with cash to kindle price rises, singled out the
role of fiscal stimulus after a recent policy shift by the central bank
was taken to mean the BOJ is in no hurry to boost its massive easing.
"Under the current monetary policy of keeping long-term interest rates
around zero percent, if interest rates should rise due to more fiscal
spending, monetary policy can rein such moves, and crowding out of
private investment won't happen," Hamada, an emeritus professor of
economics at Yale University and adviser to the cabinet, told Reuters in
"This means monetary policy will work even better."
The BOJ last month switched its policy target to controlling market
interest rates from expanding the monetary base, after its massive asset
purchases failed to generate sustained inflation.
The central bank is likely to hold off on expanding stimulus next week,
despite an expected downgrade in its price forecast that may show
Governor Haruhiko Kuroda won't see inflation hit his 2 percent target
before his tenure ends in 2018.
Speculation is rising that the government will compile another extra
budget for this fiscal year, even though parliament this month enacted a
$32-billion second extra budget to help fund Abe's economic stimulus
"Fiscal policy needs to be considered to reinforce the effect from
monetary policy, because the improvement in the labor market could stall
and it is important that the current (improvement in) the labor market
continues," Hamada said.
Hamada said the BOJ should not further cut the minus 0.1 percent rate it
imposes on some excess reserves that commercial banks park with the
central bank as, he said, this hurts businesses. He also said the BOJ
should not ramp up its asset purchases at the moment.
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File photograph of Koichi Hamada, an economic adviser to Japan's
Prime Minister Shinzo Abe, speaking during a news conference at the
Foreign Correspondents' Club of Japan in Tokyo December 1, 2014.
The BOJ last month committed to getting consumer prices above 2 percent,
but Hamada said it would be enough to get "core-core" inflation,
excluding food and energy prices, to rise about 1.5 percent.
that is achieved, the government could raise the national sales tax by 1
percentage point a year, he said.
government plans to raise the sales tax hike to 10 percent from 8 percent in
October 2019, in a bid to curb the nation's ballooning debt, after having
postponed the painful increase twice. The economy slid into recession after a
hike to 8 percent from 5 percent in April 2014.
Hamada repeated that Japan should intervene in the currency market if yen spikes
were caused by speculative moves. And he reiterated buying foreign bonds would
be an option for the BOJ if yen sharply appreciates.
"When excessive moves are seen in the currency market, the Finance Ministry
needs to punish speculators," he said.
The dollar stood around 104.00 yen <JPY=EBS> on Wednesday, after having hit an
almost 3-month high of 104.87 yen in overseas trading on expectations of a U.S.
rate hike in December.
(Reporting by Kaori Kaneko and Sumio Ito; Editing by William Mallard and
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