In April 2013, Bank of Japan Governor Haruhiko Kuroda first vowed that his team would “do whatever it can” to end deflation. Many were quick to equate the pledge with Mario Draghi’s “whatever it takes” promise at the European Central Bank. On Oct. 31, Kuroda backed up his words, dramatically increasing the central bank’s bond purchases to about $700 billion annually. Markets were thrilled.
Yet whatever the BOJ is doing clearly isn’t working. Tuesday’s gross domestic product numbers for the third quarter showed that Japan is back in recession — its sixth in the past two decades. The problem is traction. Printing mountains of yen doesn’t do any good if banks refuse to lend, and households and businesses don’t borrow. The only people benefiting from Kuroda’s largess right now are punters. Bloomberg News reports that Kuroda’s policies have helped make investors in Japanese stocks $1 trillion richer over the last two years.
Is there another way to encourage Japanese to spend, thus reviving the inflation and confidence Japan lost 17 years ago? Here’s one idea: a BOJ debit card. That’s the suggestion of Gabriel Stein, director of asset management services at Oxford Economics in London. The logic is this: Just as the U.S. bailed out banks after its 2008 crash, Japan is today bailing out the bond market and, by extension, the government. History might’ve been kinder to then-Treasury Secretary Timothy Geithner if he’d used hundreds of billions of taxpayer money to aid households, rather than Wall Street firms. In Tokyo’s case, why doesn’t the BOJ just offer cash payments directly to Japanese families, and perhaps small businesses, too?
“Instead of funding the deficit, you could credit bank accounts every year to get people to start spending,” Stein explains in Tokyo. “Put money into the hands of people, not banks, and you will end deflation.”
BOJ-sponsored cash cards could be set to expire at the end of each year, so that households would be forced to consume. What the annual allotment should be is debatable; Stein’s working number is about $8,000 or more, per citizen.
There are other unconventional strategies that might help Japan shock its economy back to life. One would be to follow South Korea’s lead and consider taxing excessive cash on corporate balance sheets (in Japan’s case, we’re talking trillions of dollars); that might prompt companies to raise salaries and increase capital investments.
Another idea: Tax banks that hoard government bonds instead of extending credit. The BOJ could even buy up distressed assets around the nation — airports, sports arenas, land around Fukushima, you name it — at significantly marked up prices.
Instead, Prime Minister Shinzo Abe is now mulling a fresh stimulus package to offset the April tax increase that prompted this recession. In effect, Japan is about to borrow more to smooth out the effects of a sales-tax hike meant to reduce the government’s massive debt load.
Whenever I ask Tokyo officials why they’re not getting more creative, I’m told some version of, “It’s just too unconventional for us.” Cautious, consensus-obsessed Japan has never been known for radical policy-making. While quantitative easing arguably originated in Japan in the early 2000s, the BOJ didn’t truly embrace it until after Fed Chairman Ben Bernanke stabilized the U.S. economy by using his own monetary “bazooka.” Likewise, Draghi’s forcefulness seemed to embolden Abe to replace conservative BOJ leader Masaaki Shirakawa with Kuroda.
But Tokyo forgets how unprecedented its economic plight is. The country faces a shrinking and aging population; public debt two-and-a-half times the size of the economy; a sclerotic political system (now about to be consumed by snap elections); and a rapidly rising rival in China. Economics 101 no longer applies to a developed nation with Japan’s debt/demographic mix. Tokyo needs to pioneer its own way out of deflation.
Unless Japan gets truly imaginative, its “lost” decades will persist for many years to come. Call Stein’s debit card idea crazy. But there is plenty more that Kuroda and Abe could be doing to revive the economy. Whatever it takes, right?
William Pesek is a Bloomberg View columnist based in Tokyo who writes on economics, markets and politics throughout the Asia-Pacific region.