Japan Should Link Fiscal Policy to Inflation

January 30, 2017 Share Print 0

Japan should delay raising the sales tax and commit to an expansionary fiscal policy until inflation meets the Bank of Japan’s 2 percent inflation target, Nobel laureate Christopher Sims said on Monday.

Linking fiscal policy to inflation, combined with continued BOJ debt purchases to keep yields low, would help overcome the limits posed by the zero lower bound on nominal interest rates, said Sims, a Princeton University economist.

Japan’s government should also delay returning to a primary budget surplus until after the inflation target is met, said Sims, who is in contact with Koichi Hamada, one of Prime Minister Shinzo Abe’s influential aides on economic policy.

Reuters

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Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA

Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.