Former Chairman of the Federal Reserve, Ben Bernanke, took a trip to Japan to meet with Prime Minister Shinzo Abe and the Bank of Japan governor Haruhiko Kuroda. Although the meeting was private, the details and the advice given are more or less known. This is because Japan was one of Bernanke’s case studies in fiscal policy and one that added to the nickname of Helicopter Ben that he no doubt is tired of most days of the week. (For related reading, check out Japan’s Economy Continues To Challenge Abenomics.)
Bernanke has long argued that Japan needs to be more flexible and aggressive with its monetary policy to get out of the deflation funk. In fact, in a speech he gave in 2003 parallels nicely with many of the aims and strategies in Abenomics as it exists today. It may have took years for the message to sink in, but the recent visit suggests that Abe is going to take at least some of Bernanke’s advice.
Abe is expected to unload a massive spending package into the Japanese economy. The timing is right as he has just won another election on the promise to push Abenomics even further. The techniques being proposed, including perpetual bonds that will never be paid off in any real sense, are extreme because deflation in Japan has been so persistent. There are internal hurdles for Japan, including a traditional distrust of monetized debt and other forms of extreme fiscal tinkering, as well as external hurdles with how trading partners will view the new easing and spending agenda if it significantly weakens the yen.
It is doubtful that Japan will go as far as Bernanke would like, but there seems to finally be a realization that economic stagnation has been the status quo in Japan for too long. Of course, Japan’s problems can’t be solved entirely by helicopter money. The long promised structural reforms have to come into play. These will be the more important change for Japan as the monetary weapons are exhausted. (For more, see Aging Japan Is an Arrow In the Back of Abenomics.)
Ben Bernanke deserves all the credit he gets for his bold moves during the financial crisis. The bailouts and quantitative easing softened the blow and likely shortened the contraction. Perhaps this is to be Bernanke’s post-retirement life, flying all over the world convincing struggling economies to be bolder with their fiscal and monetary policy. At this point, Japan has been in an economic funk for so long that it is worth trying anything.