Ultimately, it is the story of the end game of the permanent zero interest rate policy.In a follow up post, Duy noted that:
a thread is making the rounds claiming that Japanese Prime Minister Shinzo Abe is all bark, no bite. Joshua Wojnilower argues that Abe is a closet austerian, thus ultimately the actual stimulus enacted will be of the short-term, low-power variety. Noah Smith is less diplomatic, pointing out that Abe's first time at the helm was something of a disaster because Abe fundamentally has a narrow focus:
"I of course don't mean to imply that Abe's cultural conservatism makes him unlikely to experiment with monetary policy (unlike in America, in Japan "hard money" is less of a conservative sacred cow). Instead, what I mean is that Abe really just does not care very much at all about the economy. I mean, of course he wants Japan to be strong, and of course he doesn't want his party kicked out of power. But his overwhelming priority is erasing the legacy of World War 2, with the economy a distant, distant second."I highlighted the following chart in my previous post:
Abe’s previous leadership entailed the smallest budget deficit during the past 12 years, by a wide margin (Source: IMF):
Although Abe may be willing to accept short-term fiscal expansion this time around, his medium and long term views still seem focused on reducing public debt.Now Abe’s government is following through with a $116bn stimulus package that sent the Nikkei shooting higher and pushed the Yen even lower. Supposedly:
the stimulus will boost Japan’s economy by 2% and create 600,000 jobs.Has the Monetarist hero suddenly become a New Keynesian icon? For the time being, maybe so, but I maintain my reservations about the mid-to-long term stimulative plans of this government. Fortunately, for me, Noah Smith also remains pessimistic given Abe’s and the LDP party’s history of waste and favoritism accompanying stimulus measures:
Anyway, the tweaked electoral system, lower "clientelist" pork spending, and the disastrous unpopularity of Abe's first tenure as prime minister helped ushed the DPJ into power, breaking the LDP's 55-year run. But now the LDP is back, and they need to re-establish their base of support. This means re-establishing the back-scratching relationship with those construction firms (and, by extension, rural Japan, right-wing Tea Party type groups, and the mafia). The LDP needs to say "Hey, guys, things are back to the way they were." This, I suspect, is the main reason for the "emergency stimulus".
To sum up: Once again, I think that Abe's appearance as a bold Keynesian experimenter is a cover for a program of traditional mercantilism and corporatism. I guess we'll see how well that program works.