The Japanese government has approved a massive emergency stimulus package, worth ¥10.3trn (£71.5bn), aimed at restoring growth in the long-stagnant economy.
The package will be used to fund infrastructure investment, disaster mitigation projects, subsidies for companies which invest heavily in research and development, and financial aid to small businesses. The government hopes to raise growth by 2 percentage points, as well as add over half a million jobs to the economy.
The prime minister, Shinzo Abe, also made clear again that he is planning to exercise far more direct control over Japanese monetary policy than is conventional. Before Abe was elected, he announced that the BoJ should embrace “unlimited easing” and cut interest rates below even the 0.1 per cent paid on deposits “to strengthen pressure to lend”.
Today, Abe reiterated that pressure, telling a press conference:
We will put an end to this shrinking, and aim to build a stronger economy where earnings and incomes can grow. For that, the government must first take the initiative to create demand, and boost the entire economy.
Abe has no qualms with wild policy. Last week, he “nationalised” industrial stock in Japan, buying private infrastructure with public funds in order to force the pace of investment in the country.
It seems quite clear that Abe is prepared to use every possible channel available to him to push for a return to growth in Japan. The results have been positive so far; bond yields have stayed low, while the yen has finally dropped (which might be bad for the country’s elderly, but is very good for its economy overall).
Paul Krugman argues that all of this success isn’t exactly on purpose. It bears more hallmarks of Abe – “a nationalist, a denier of World War II atrocities, a man with little obvious interest in economic policy” – doing exactly the opposite of what he’s told to do based purely on his contempt for learned opinion:
It will be a bitter irony if a pretty bad guy, with all the wrong motives, ends up doing the right thing economically, while all the good guys fail because they’re too determined to be, well, good guys. But that’s what happened in the 1930s, too…
On the 22nd, the Bank of Japan will meet, and we’ll see how much it listened to Abe. If it does follow his requests/demands for aggressive monetary policy, the country will solidify its reputation as one to watch in the immediate future.