Adviser to PM Abe: Japan
needs 10 trillion yen stimulus in each of next two years
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[August 23, 2016]
By Stanley White and Ami Miyazaki
TOKYO (Reuters) - Japan should spend 10
trillion yen ($99.83 billion) on fiscal stimulus both in fiscal 2017
and in fiscal 2018 to offset a lack of demand in the economy and
eliminate the risk of deflation, an adviser to Prime Minister Shinzo
Abe said on Tuesday.
Abe has already compiled a stimulus package for the current fiscal
year with 7.5 trillion yen in spending, but the government needs to
spend more and do so quickly to boost demand, Satoshi Fujii, an
adviser to Abe, told Reuters in an interview.
"We need to spend 10 trillion yen next fiscal year and another 10
trillion yen the following fiscal year to eliminate the deflationary
gap," he said.
The Bank of Japan should stick with its existing quantitative easing
but should examine its negative interest rate policy and decide how
to proceed in the future, Fujii said.
"The important point is the velocity of spending. The problem with
fiscal stimulus up until now is the velocity of spending was not
high enough," said Fujii, who is also a professor at Kyoto
University.
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"There are a lot of opinions about negative rates, but I would like
the BOJ to review this and decide what to do from here on."
Fujii's comments suggest the government could rely more on fiscal
stimulus and less on additional monetary easing to revive Japan's
fortunes after the economy ground to a halt in the second quarter
due to weak consumption and exports.
Fujii said Japan's deflationary gap, or the difference between
actual output and output at full employment, is around 15 trillion
yen, which means the government needs to boost domestic demand by
the same amount.
The government should continue with its program of spending on
infrastructure, Fujii said. More measures are also needed to
increase productivity and encourage wages gains for the middle
class, Fujii said.
Some economists have warned against further government stimulus
because Japan's public debt burden is already the worst among
advanced countries at twice the size of gross domestic product, but
Fujii shrugged off these concerns.
If the economy grows faster as a result of government stimulus, this
would lead to an increase in tax revenue, which could be used to pay
off government debt later, Fujii said.
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![](../images/082316pics/busine37.jpg)
Satoshi Fujii, an adviser to Japanese Prime Minister Shinzo Abe,
speaks at an interview with Reuters in Tokyo, Japan, August 23,
2016. REUTERS/Kim Kyung-Hoon
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The BOJ has already said it will conduct a "comprehensive review" of its
quantitative easing and negative interest rate policy at its meeting next month
after repeatedly pushing back the timing for its 2 percent inflation target.
The BOJ's policy framework combines government debt purchases with purchases of
assets linked to the stock market and a negative 0.1 percent interest rate for a
small portion of bank reserves.
Fujii acknowledged that the central bank has already taken significant steps
toward easing deflationary pressure and that the onus is more on the government
and the private sector to accelerate growth.
"A lot of monetary policy steps are already in place. It is important to figure
out how to get the monetary base increases flowing through the economy," Fujii
said.
"It is important for the BOJ to continue with its current policies and to use
fiscal policy to get money flowing.
($1 = 100.1700 yen)
(Reporting by Stanley White and Ami Miyazaki; Editing by Simon Cameron-Moore)
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