US Nobel Laureate and Economist Joseph Stiglitz Advised Shinzo Abe To Delay Sales Tax Increase & Focus On Fiscal Spending
Intra-Day Market Moving News and Views (USD/JPY)
16 Mar 2016 02:06GMT
Japan's PM Shinzo Abe is meeting with foreign economists to help him prepare for hosting a Group of Seven summit that will be hosted by Japan in May 2016, and U.S. Nobel laureate and economist Joseph Stiglitz said that he had advised Shinzo Abe to delay a sales tax increase scheduled for next year and to focus more on fiscal spending to boost a recovery from recession. Stiglitz told Abe that G7 need to coordinate policy as weak aggregate demand was harming the global economy and contributing to income disparity.
The G7 talks, according to some economists, could give Abe a convenient reason to postpone tax hikes, relax fiscal austerity and and introduce more stimulus to avoid relying too much on monetary policy.
"A consumption tax increase now would be going in the wrong direction," said Stiglitz, a professor at Columbia University. "This is a time to have stimulating fiscal policy."
Abe is scheduled to raise the nationwide sales tax to 10 percent from 8 percent in April next year, but some of Abe's closest advisers are calling for the plan to be shelved.
Abe had raised the levy to 8 percent from 5 percent in April 2014, which was agreed under the previous government in order to curb Japan's massive public debt, but this move triggered a recession and some economists say consumer spending still has not fully recovered.
Stiglitz advised the Japan's government the need to adapt its policies in response to changes in the economy, and that taxes on carbon emissions could be a better way to spur innovation and improve domestic demand.
A G20 summit last month had called for more fiscal spending and less reliance on monetary policy to help the fragile global economy, which some investors say has reached its limit after years of quantitative easing and negative real interest rates.
This morning dollar pared yesterday's sharp losses and jumped in Asian morning on BoJ Kuroda's dovish remarks. Bank of Japan Governor Haruhiko Kuroda was speaking in parliament this morning, he commented that it was theoretically possible for the central bank to cut interest rates to around minus 0.5 percent, but he could not say at this moment which policy tools the BOJ would use in case it decided to expand monetary stimulus again, saying that it would depend on economic conditions at the time.
The BOJ added a negative interest rate policy to its massive asset-buying programme in January and began charging a 0.1 percent interest on a portion of excess reserves financial institutions park with the central bank.