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Revived Expectations of Helicopter Money in Japan
By Isaac Ndegwa
Japan carried out a “comprehensive review” of its monetary stimulus program but that has only increased the expectations that the BoJ will adopt some radical tools such as ‘helicopter money’. The policy aims at letting the government print money and spend it in order to spur inflation. In the release of BoJ minutes, markets were disappointed as some factions expected the government to announce increments in the government debt buying and lowering of interest rates. The BoJ seems to be running out of available options that can lift the Japanese economy from two decades of constant deflation.
Japan has had about three years of massive attempts at currency easing but as it stands, there is very little to show that the monetary easing policies adopted so far are working. Majority of the economists in Japan already think that the BoJ governor Kuroda’s assessment last week shows that the monetary policy may need to move into close co-operation with the spending policy’s of the Prime Minister Shinzo Abe. Shinzo Abe had announced that the economy needs a fiscal spending package exceeding a quarter trillion US Dollars in order for the economy to kick-start its growth. Both sides of the divide are now tracking towards “helicopter money”.
The BoJ and the government’s collaboration has becoming inevitable
The Bank of Japan’s collaboration with the government will best be done if the government issues 50 year bonds and the Bank of Japan also commits to holding them for periods spanning over a decade. The “comprehensive review” of the monetary policy is for now the most outright confirmation that the government and the BoJ seem to have greater plans to collaborate on tackling the deflationary pressure in the economy. The helicopter money metaphor is not a new term in fighting deflation as the former Federal Reserve boss Ben Bernanke had toyed with the idea in 2002. The aggressive printing of money and using it on government initiatives to fight deflation was first proposed by the economist Milton Friedman.
In its narrowest sense, helicopter money may be carried out by having the government sell off perpetual bonds and never have to repay that money to the central bank. The money is instead directly fed to the public circulation (as easy as a helicopter drop). There has not been a high likelihood of the policy being adopted in Japan before but with everything else not working effectively in reducing deflation, the BoJ will soon need to adopt radical moves. If the BoJ purchases bonds or debt contracts that have been issued by state-backed institutions, the interventions will have a greater impact that what is already going on in the treasury bond market.
Bank of Japan increased its purchases of ETFs
The July 29th policy meeting was preceded by an announcement that Japan will table a large spending package albeit under scanty details on how its funding would take place. The BoJ has since then taken a barrage of public pleas for it to work in collaboration with the government. The BoJ also increased the Exchange Traded Funds to purchase to 6 trillion Yen and made no changes to its interest rates (negative 0.1%).
Japan has had about three years of massive attempts at currency easing but as it stands, there is very little to show that the monetary easing policies adopted so far are working. Majority of the economists in Japan already think that the BoJ governor Kuroda’s assessment last week shows that the monetary policy may need to move into close co-operation with the spending policy’s of the Prime Minister Shinzo Abe. Shinzo Abe had announced that the economy needs a fiscal spending package exceeding a quarter trillion US Dollars in order for the economy to kick-start its growth. Both sides of the divide are now tracking towards “helicopter money”. The BoJ and the government’s collaboration has becoming inevitable
The Bank of Japan’s collaboration with the government will best be done if the government issues 50 year bonds and the Bank of Japan also commits to holding them for periods spanning over a decade. The “comprehensive review” of the monetary policy is for now the most outright confirmation that the government and the BoJ seem to have greater plans to collaborate on tackling the deflationary pressure in the economy. The helicopter money metaphor is not a new term in fighting deflation as the former Federal Reserve boss Ben Bernanke had toyed with the idea in 2002. The aggressive printing of money and using it on government initiatives to fight deflation was first proposed by the economist Milton Friedman.
In its narrowest sense, helicopter money may be carried out by having the government sell off perpetual bonds and never have to repay that money to the central bank. The money is instead directly fed to the public circulation (as easy as a helicopter drop). There has not been a high likelihood of the policy being adopted in Japan before but with everything else not working effectively in reducing deflation, the BoJ will soon need to adopt radical moves. If the BoJ purchases bonds or debt contracts that have been issued by state-backed institutions, the interventions will have a greater impact that what is already going on in the treasury bond market.
Bank of Japan increased its purchases of ETFs
The July 29th policy meeting was preceded by an announcement that Japan will table a large spending package albeit under scanty details on how its funding would take place. The BoJ has since then taken a barrage of public pleas for it to work in collaboration with the government. The BoJ also increased the Exchange Traded Funds to purchase to 6 trillion Yen and made no changes to its interest rates (negative 0.1%).
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By Isaac Ndegwa
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