Former Bank of Japan Gov. Masaaki Shirakawa said he is witnessing a “Japanification” of monetary and fiscal policy in other countries and doubts that low interest rate and high debt strategies will work to solve economic problems.
“Sadly, we are now observing this type of Japanification outside Japan,” Shirakawa said at the Bund Summit in Shanghai on Sunday. “Policymakers and mainstream academics are still obsessed with a specter of deflation.”
Japan should have been faster in tackling more fundamental issues such as flagging productivity, Shirakawa said.
Some central banks have started shifting toward monetary easing or hinted they may do so as tepid demand and U.S.-China trade tensions weigh on global growth. Central bankers have also called for increased fiscal spending to help bolster economies.
The goals of monetary and fiscal easing should only be to “bring future demand to the present” and aren’t a solution to global economic problems, Shirakawa said at Sunday’s forum. “The capacity to front load will be restrained by the country’s potential growth rate, which will be kept low as perpetual low interest rates keep inefficient firms alive,” he said.