Raw Japan
Slices of Japanese business, politics and life
The allure of free money
People say there’s no such thing as a free lunch. But in theory, a government can have one, some economists and Japanese politicians say, if it wishes to save the economy from deflation and recession. It should just print money and then spend it.
In the past few weeks, some members of Japan’s ruling coalition as well as economists have proposed such a move as the spectre of deflation looms in Japan, now amid what is likely to be its longest economic contraction in modern times.
And the idea, outlandish as it may sound, does not come from fringe economists — Nobel-laureate Joseph Stiglitz proposed this remedy in 2003 as a way to bring Japan out of deflation.
Government spending would make up for the sharp fall in demand from the private sector, while printing more money could cause a minor loss in public confidence in money — a good thing.
What can the Bank of Japan do?
Japanese interest rates have already dropped to just 0.1 percent, leaving the Bank of Japan with few traditional weapons to fight its corner of the global financial crisis as it meets on Wednesday and Thursday this week to review monetary policy.
It could, of course, return to zero interest rates, but Japanese policymakers are not convinced that this worked last time they tried it and, with rates already so low, how much difference would moving to zero make?
