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Reports from the government and the central bank show that the Japanese economy is on a downward path. Because of fund shortages, the size of the economic packages that the Democratic Party of Japan government decided on in October and November was too small to be effective.

The upcoming Liberal Democratic Party government should work out a meaningful economic package that will help stimulate the economy. But it should be careful with the LDP’s call for the Bank of Japan to adopt unlimited monetary easing and to buy all construction bonds issued by the government. The possible undesirable side effects of these measures include rises in long-term interest rates and inflation not accompanied by investment that expands job opportunities and increases wages.

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