Business / Economy

Top IMF official denies Japan is a case study in Modern Monetary Theory

Bloomberg

The Bank of Japan’s monetary policy aims to boost inflation and differs from Modern Monetary Theory, according to a senior official at the International Monetary Fund.

“We do not consider Japan a case study in MMT,” Odd Per Brekk, deputy director of the Asia and Pacific Department, said in an interview on the sidelines of IMF meetings in Washington on Friday. “The proponents of MMT advocate permanently supplying monetary supply, or money supply, to finance fiscal deficits and boost economic activity both under normal and adverse conditions. The way we see it, this does not characterize the current situation in Japan.”

The BOJ’s purchases of Japanese government bonds have reduced the financing cost for the government, but that’s not the objective of the central bank’s policy as it aims to achieve its 2 percent inflation target, Brekk said.

The nation’s Finance Ministry has also been trying to implement gradual fiscal consolidation, and a sales tax increase on Oct. 1 was a right step toward that goal, according to Brekk.

His comments come as the government mulls over the need for an extra budget boost to offset economic damage caused by Typhoon Hagibis last weekend.

In the short term, the government has some space to respond to unexpected impacts to growth like the typhoon, Brekk said, while in the medium term there is a need for fiscal adjustment.

“Over time, we are advocating a gradual, but growth-friendly, fiscal consolidation.”

Meanwhile, officials from the International Monetary Fund’s Asia department delivered a stern warning on climate change risks: Governments need to act urgently.

“Asia is definitely the most vulnerable region for this climate change,” Changyong Rhee, director of the Fund’s Asia Pacific department, told reporters Friday. “There is an immediate need for every country to address this issue.”

By investing in clean-energy technology, policy makers will unleash new sources of growth. Rhee said Asia can lead the way.

“I think one thing Asia policymakers have to think about is this is an opportunity to develop new technology to leapfrog,” he said.

Some of the IMF’s biggest downward growth revisions this week were in Asia, including in Hong Kong, South Korea and Singapore. The common denominator was China’s slowdown and spillover from the U.S.-China trade war.

Emerging and developing Asia is now tipped to grow 5.9 percent this year, down from the 6.2 percent forecast given in July.

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