The Japanese economy has been struggling to grow for years, despite large budget deficits, huge public debts and an accommodating monetary policy. In this situation something must be done, and there are two things to try. First, do something different, but you don't know what. Second, insist on deficits and monetary accommodation. Implicit in this second choice is the judgment that expansionary policies have been too timid, and at this point we need to throw shyness away and move forward with more stimuli.
The new government of Shinzo Abe then ventures into the terra incognita of superstimulus. Despite a budget deficit of around 10% of GDP, he is preparing to propose to the Diet a package of 10 trillion yen (about 2% of GDP). The 'horse cure' would consist of a simultaneous monetary support (this must be approved by the Bank of Japan, and Abe has already indicated that at the next governor's term he will have his own candidate for that post). The combined provision would therefore be an expansion of the deficit financed, directly or indirectly, by the creation of money. A combination that would horrify the Bundesbank. But, if there are no other ways to get the Japanese economy back on track…
Japan Today
