Lawmakers are calling for a package of about 10 trillion yen ($94 billion) partly financed by new bond issuance, making full use of the BOJ’s money printing that pushed 10-year yields into negative territory. “Japanese policymakers could meet market expectations for helicopter money by compiling a supplementary budget in autumn and accompanying that with additional monetary easing,” said Mari Iwashita, chief market economist at SMBC Friend Securities.
Helicopter money essentially eliminates the need for that tired old intermediary, the wealth effect. Speculation that Japan was considering helicopter money ignited this week after former Federal Reserve Chairman Ben Bernanke met Abe and BOJ Governor Haruhiko Kuroda during a private visit to Tokyo. “For advocates of helicopter money, it’s not impossible to regard that as one variation of helicopter money,” he told Reuters on Thursday. Additional reporting by Minami Funakoshi, Tetsushi Kajimoto, Kaori Kaneko, Yoshifumi Takemoto and Takashi Umekawa; Editing by Richard BorsukJapan's Prime Minister Shinzo Abe poses for photos before a news conference following a victory in he upper house elections by his ruling coalition at the LDP headquarters in Tokyo, Japan, July 11, 2016. However, no one can rule anything out. Mobius Says Helicopter Money Will Be Japan’s Next Big Experiment August 25, 2016, 4:58 AM EDT technology Kuroda Said in Comments in June No Need for Helicopter Money July 21, 2016, 8:03 AM EDT Speculation that Japan was considering helicopter money ignited this week after former Federal Reserve Chairman Ben Bernanke met Abe and BOJ Governor Haruhiko Kuroda during a private visit to Tokyo. Is Japan deploying helicopter money? REUTERS/Toru Hanai But Kuroda, a well-known fiscal hawk, may be reluctant to ease now for fear of markets seeing that as a sign the central bank is monetizing debt, which could weaken its credibility. Helicopter money was coined by American economist Milton Friedman and gained market prominence when Bernanke cited it in a 2002 speech as a way central banks might finance government budgets directly to fight deflation. Abe’s administration is preparing a stimulus package of public works projects, payouts to households and cheap loans for infrastructure projects.
In Japan, bad memories of helicopter money in the 1930s under Finance Minister Takahashi still loom large. After the July meeting, the BOJ next reviews policy Sept. 20-21. “But it’s a different story when you’re talking about combining fiscal and monetary expansion. “It’s clear the government won’t do helicopter money in the strict sense,” said a government official with knowledge of deliberations on what action to pursue. methods of deflation control and go straight to helicopter money-type policies, but if history is any indication, they probably won’t. Aug. 7, 2020 Minutes for the Fifteenth Meeting of the Cross-Industry Committee on Japanese Yen Interest Rate Benchmarks on July 16, 2020 [PDF 372KB] Aug. 7, 2020 Release of the Second Public Consultation on Benchmark Reform ; Aug. 7, 2020 Amounts Outstanding in the Call Money Market (July) [XLSX 34KB] Aug. 7, 2020 Consumption Activity Index Government and central bank officials say there is no chance Japan will resort to having the central bank monetize debt to fund government spending, such as by buying perpetual bonds to allow the government to boost spending without paying back debt. Koichi Hamada, a close Abe aide, said that while he opposes institutionalizing helicopter money, expanding fiscal and monetary stimulus simultaneously as a “one-off” boost could work in stimulating the economy. The BOJ is now buying roughly 110-120 trillion yen of bonds a year to meet a pledge to expand the balance of its holdings at an annual pace of 80 trillion yen. In the past week, Japanese markets have seen hyped-up speculation that the government will resort to using what’s called “helicopter money”, where a central bank directly finances budget stimulus through programs such as perpetual bonds.
Time will only tell if Japan decides to abandon traditional Q.E.