Thu, Jul 14, 2016 - Page 10 News List

Abe adviser calls for coordinated stimulus strategy

‘HELICOPTER MONEY‘:Economist Junko Nishioka said people are talking as if money would fall from the sky and had not considered how it would be financed

Bloomberg

A key economic adviser to Japanese Prime Minister Shinzo Abe yesterday said boosting fiscal and monetary stimulus at the same time would be a good strategy, while playing down the likelihood of employing so-called “helicopter money.”

Japan needs to keep various policy options open, including coordinated action by its government and central bank, Koichi Hamada said in an interview.

Helicopter money, an unorthodox policy approach in which the Bank of Japan could directly fund government spending, would be a “very risky gamble,” said Hamada, 80, adding that history has shown the dangers of unstoppable inflation.

He was speaking as the government prepared a fiscal stimulus package to boost the struggling economy and ahead of a central bank meeting on July 28 and July 29.

The yen has weakened this week, while stocks have rallied in Japan amid debate and speculation on the potential size and composition of stimulus.

“I get a feeling that discussions are floating way up in the air,” said Junko Nishioka, chief economist for Japan at Sumitomo Mitsui Banking Corp. “After all, what is helicopter money? I think people are talking as if money would fall from the sky. Discussions are accelerating even though they haven’t organized their thoughts at all on things like how it would be financed.”

The Sankei Shimbun reported earlier that officials around Abe are considering helicopter money as a policy option. Japanese Chief Cabinet Secretary Yoshihide Suga told reporters later that was not the case.

The Topix index pared its gains in the afternoon to close with a 1.1 percent increase. The yen rose 0.4 percent to ¥104.24 per US dollar as of 3:43pm in Tokyo, halting a two-day decline.

Abe, Hamada and other key government officials on Tuesday met former US Federal Reserve chairman Ben Bernanke and discussed the Japanese economy.

Abe told Bernanke that he wants to speed up the nation’s exit from deflation, underscoring his commitment to implementing fresh economic stimulus.

Hamada said there was no discussion of helicopter money at the meeting.

Despite this week’s rally in stocks, Hamada said Japanese shares have been sold below their fundamental value.

He said Japanese investors, not the central bank, have shown cowardice. The bank is continuing an unprecedented program of asset purchases and has adopted a negative interest rate.

Hamada said that while he was not sure what the central bank will do at its next gathering, it does not need to worry about volatile oil prices.

Inflation, excluding fresh food and oil, has reached about 1 percent, he said.

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