Abe revived this panel. Lots of cross pressures as to whether to increase deficit spending or not. If not, they could continue to be the land of the rising yen, as ‘monetary policy’ short of actual fx purchases doesn’t cut it.

As previously discussed, while reported reserves have remained flat since the last announced intervention, there are signs actual fx reserves have been rising from what is functionally intervention not counted as official intervention, but I can’t yet say for sure.

And note that the purchase of a US Treasury $1 trillion platinum coin would weaken the yen and put off the US debt ceiling issue…


Govt Starts Talks On Fiscal Reform At Revived Key Policy Panel

TOKYO (Kyodo) — A revived Japanese government economic policy panel started discussions Wednesday on how to rehabilitate the nation’s finances in the longer term, with the government’s plan to issue more debt to fund a stimulus package stirring concern over the nation’s fiscal health.

The meeting of the Council on Economic and Fiscal Policy was the first in three and a half years. The panel had played a leading role in putting together economic and fiscal policy under the government of Prime Minister Junichiro Koizumi of the Liberal Democratic Party.

During Wednesday’s meeting of the panel revived by Prime Minister Shinzo Abe, who took office on Dec. 26, participants exchanged views on an emergency economic stimulus package slated to be approved by the Cabinet on Friday.

The government led by the LDP, which returned to power in the Dec. 16 general election after three years in opposition, also began discussions on mapping out the basic policy for an initial budget for the next fiscal year starting April and medium-to-long term economic and fiscal policy blueprints.

Abe’s government is considering approving an emergency stimulus package of over 20 trillion yen ($228.7 billion) to boost Japan’s slowing export-reliant economy, and compiling a 13.1 trillion yen extra budget for the current fiscal year to finance it, sources close to the matter said Tuesday.

To cover the shortfall in revenue needed to pay for the supplementary budget, Tokyo is making arrangements to issue an additional 5.2 trillion yen in construction bonds for fiscal 2012, the sources said.

The move has focused attention on how the LDP-led government will show a commitment to restoring Japan’s precarious fiscal health, the worst among major developed countries.

If fears intensify that progress on fiscal reform has stalled, long-term interest rates could spike as investors become reluctant to buy government bonds due to fears of default, dampening corporate and private investment and dragging down the broader economy, some analysts have warned.

The previous government led by the Democratic Party of Japan had set as its fiscal reform target halving Japan’s primary balance deficit — total expenditures in excess of total revenues, excluding interest payments on debt — by the end of fiscal 2015.

Abe is eager to finalize by June the basic fiscal policy, which could include a plan to put Japan on a path toward fiscal restoration, the sources said.

The Council on Economic and Fiscal Policy, first established in 2001 but put on ice after the DPJ took power in 2009, would function as the “control tower” of Japan’s macroeconomic policies, Abe has said.

The Bank of Japan governor is requested to join the council’s meetings along with business leaders and academics, with Abe saying he wants to deepen communication with the central bank chief there.

Abe has pledged to beat the nation’s chronic deflation, urging the BOJ to aggressively ease monetary policy until a 2 percent inflation rate is achieved.

Financial market participants said they are paying attention to whether Abe will put additional pressure on current BOJ Governor Masaaki Shirakawa to do more during the meeting late Wednesday, ahead of the BOJ’s Policy Board meeting on Jan. 21 and 22, at which the central bank is expected to introduce a 2 percent inflation target, as requested by Abe.

19 Responses

  1. The BOJ would buy the coin from the Treasury or the FED? Whichever case, how does the yen used to purchase the coin actually enter the global economy? Or is it (as with QEs’ ‘dollar printing’) just the perception of more yen circulating that lowers its relative value in the FX markets?

      1. @WARREN MOSLER, Ah, got it, not directly buying THE coin, but the dollars the coin would free up from allowing the Congress to continue appropriations. I was kind of hoping for an international transfer ceremony –

      2. @Bob Salsa, opps, that was a supposed to have been a pic of a Yapese stone money coin being moved by about 20 tribesmen. I think it would be cool to Tim Geithner and a dozen Treasury officials dressed up like that when they present the T-coin to Ben at the FED and then onto the BOJ.

  2. Re: actual fx purchases. The implication of the post’s introductory paragraph is that they can work regardless of (domestic) fiscal stance. I’m trying to understand the mechanism.

    If BOJ does aggressive currency intervention while Japanese fiscal stance tightens, does Japan effectively get to benefit from the deficit spending of other countries (e.g., the United States)? Should I think of the mechanism as “stealing” the fiscal stance of another country? (In that case in a mercantilist world, the more the United States fiscal stance goes negative, the stronger the dollar. Funny that.)

  3. Note the progress, no one is saying the President need borrow the coin from Japan (or China).

    Supposedly the treasury is going to make a statement regarding the idea. I’m curious if the congressmen that wrote the law actually knew what they were doing?

    1. @Winslow R., the head of the Mint at the time says, they did know what they were doing: to empower the treasury to raise funds (seigniorage profits) by entering the platinum market. He says, they actually were very successful and knocked out big competitors quickly. But he grants that the magnitude of the present exercise is new and unforeseen. Political questions remain.

      Actually, I found the article MamMoth linked to just above this thread very informative. It also underlines the difference between the two cases of coins’ going into circulation (being sold to private sector) and being held at the Fed.

  4. Bloomberg is reporting that Jack Lew, presently Chief of Staff of the Administration, is being named Secretary of the US Treasury.

    It is only right in our present financial world that one of the primary manufacturers and distributors of OTC derivatives should be made Secretary of the Treasury.

    God help us all.

  5. I have a lot to learn about economics, but I’m trying to figure out the basic issue with the recession and maybe someone can tell me if I’m on the right track.

    1) As I understand it, unemployment is high, inflation is low, interest rates are low, cash hoards are large, and aggregate demand is low. Doesn’t this mean the consumer sector needs more cash?

    2) If we do QE, why would businesses borrow this money to build capacity to meet demand they aren’t seeing?

    3) If we create a debt-free coin and pay the debt, won’t that money simply go into the hands of investors who are already looking for places to stash their cash that they can’t invest?

    4) Why can’t we print this debt-free coin and turn it into stimulus checks for consumers? Businesses can earn the money debt-free instead of banks giving up on trying to loan them money and instead building more bubbles.

    Am I close to understanding this?

  6. Classic, Warren,
    Just about split a gut laughing at this one.

    But seriously, yenbuy sounds suspiciously like Renmimbi. Is there a Comrade/Capitalist connection?

    Meanwhile, colloidal gold has been used for illnesses as different as arthritis and cancer. Why couln’t enemic platinum be used for precarious fiat health?

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