Meanwhile, In Japan

Lost in the shuffle Tuesday was more than $700 billion in additional stimulus out of Japan, where policymakers are fighting to preserve a rebound from the worst economic collapse since at least 1955.

Revised figures out Tuesday showed the world’s third-largest economy grew an annualized 22.9% during the third quarter on the heels of Q2’s epic 29.2% contraction.

Still, Japan is nowhere near recouping the overall level of output seen in mid-2019, before the effects of a consumption-tax hike and a typhoon began to weigh. The figure (below) gives you a sense of things. Japan came into the pandemic hobbled economically.

The new stimulus package unveiled by Yoshihide Suga comes amid criticism of a travel campaign that some blame for rising coronavirus cases.

“The government moved to promote domestic travel, seeing that they would not be able to continue their businesses as things were,” Suga said earlier this month, during his first news briefing since virus cases surged anew. The initiative, called “Go-To-Travel,” aimed at shoring up small businesses, with a focus on the hospitality sector.

The latest package includes an extension of that program, apparently. As Donald Trump would say, “We’ll see what happens.” Suga claimed the new measures would juice the economy by 3.6 percentage points, although, as Bloomberg noted, he “didn’t clarify the yardstick or time period he was referring to.” (Small details.)

“We have compiled the new measures to maintain employment, sustain business and restore the economy and open a way to achieve new growth in green and digital areas, so as to protect people’s lives and livelihoods,” Suga declared.

The total value of stimulus tied to COVID-19 in Japan is now around $3 trillion. That is two-thirds the size of the entire economy. Of the additional $708 billion, more than $380 billion is earmarked for direct fiscal spending. The package, which reportedly includes some cash handouts to single-parent families, will be funded by a third extra budget.

“Supplementary budgets are a time-worn tool for Japanese leaders,” Daniel Moss wrote, in an opinion column Tuesday, suggesting the fiscal measures are in part a political imperative for Suga, who stepped into Shinzo Abe’s shoes earlier this year.

“He needs to keep the economy nicely juiced until September, the likely date for a nationwide poll,” Moss added, before regaling readers with the obligatory nod to Japan’s massive public debt load, which he reminds you is “roughly twice as much as the average for advanced economies.”

Of course, Japan is a currency-issuer with plenty of monetary sovereignty. So, as much as this will rankle some readers, its public debt burden actually doesn’t matter all that much.

Moss notes that “Suga can worry about [the debt] later” given that “interest rates are at rock-bottom levels and likely to stay that way, especially with the Bank of Japan pledging to buy as many bonds as needed.”

I don’t want to get too far off track here, but I do want to make a couple of points.

First, this conversation shouldn’t be couched in terms of interest rates. Bond yields are a policy variable. The Bank of Japan knows that better than anyone. This conversation should be about inflation, not interest rates, and Japan is the poster child for deflationary dynamics. Indeed, Japan has become so synonymous with disinflation that the country’s very name is often used interchangeably with deflation (i.e., “Japanification” subbing for “deflationary spiral”).

Second, Japan could simply cancel the JGBs the BoJ owns. You laugh (and MMT critics laugh), but I, for one, seriously doubt that inflation would suddenly take off in Japan if the government just decided to cancel the blue slice in the figure (below).

Anyway, the overarching message is just that the developed world got another $700 billion in stimulus on Tuesday, bringing the total globally since the onset of the pandemic to… I don’t know, actually. Let’s just call it: A very, very large number.

Meanwhile, say congratulations to the BoJ. They are now the largest holder of Japanese equities, having surpassed GPIF in November.

The central bank’s ETF holdings total more than 45 trillion yen. Kuroda’s unrealized gain on the bank’s equity book is 9.9 trillion yen.

Needless to say, it helps when you can print money to keep buying the assets that you own. How’s your P/L looking?


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4 thoughts on “Meanwhile, In Japan

    1. They are very close to it. But they refuse to publicly acknowledge the reality. I wish the MOF would just replace debt held by the MOF with zero coupon perpetuals. Why, they could even add a call feature. Faces saved all around!

      In many ways, has been a reliable harbinger of economic and social (like young people eschewing cars or splashy brand name apparel) changes which slowly spread throughout the world. This is another one.

  1. The naysayers of the go-to campaign, of which I have yet to meet one, must have a very different perspective from mine. Excess mortality in Japan is negative this year, no mean feat in the fastest ageing society in the world, with combined deaths from all respiratory illnesses (including Covid) way down on the average from the past few years. In the context, nudging people to get out and about seems like an extremely sensible and worthwhile exercise. Plus, on a personal note, having the chance to see some of the sights of Kyoto without the usual crowds has been wonderful.

  2. Yeah, even conceptually, inflation spiking from canceled the debt seems unlikely. I am less clear on distortions in the equity market if they keep on bidding like this.

NEWSROOM crewneck & prints