Japan needs to double the nearly $700 billion its already budgeted in extra spending to ensure a recovery from the pandemic, says an influential ruling party lawmaker who helped shape the countrys economic strategy.

Kozo Yamamoto, who played a key role in crafting the fiscal and monetary framework known as Abenomics and is readying new proposals for Prime Minister Yoshihide Suga, says Japan needs another big dose of fiscal medicine thats as ambitious as the

aid bill just passed in the U.S.

He says the Bank of Japan cant do much more by itself, even as investors obsess over what the bank might deliver at a policy review next week.

BOJ Is Said to Seek More Yield Fluctuations in Bond Market

We need to make a bold move along the lines of what the U.S. is doing, Yamamoto said in an interview this week. Some people are in dire circumstances.

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Kozo Yamamoto

Photographer: Yuriko Nakao/Bloomberg

The 72-year-old lawmakers call to action comes with the economy forecast to grow at only half the pace of the U.S. this year. Renewed restrictions to contain the virus have thrown Japans recovery into what is seen as a temporary reverse this quarter.

Japan compiled three extra budgets worth about 73 trillion yen ($671 billion) last year to deal with the virus and support the economy. Yamamoto says another extra budget matching that total is needed immediately for the year starting in April.

Like

most economists, Yamamoto sees no game-changer emerging from the BOJs policy review next week. Whatever tweaks the BOJ does introduce, he says the policies cant make a bigger impact without more bonds to buy, which is one reason why more government spending is so important.

Fresh spending and the debt issued to pay for it would help fuel the banks easing campaign and have a beneficial impact on Japans currency and stocks, according to Yamamotos argument.

He and a group of ruling party lawmakers have been meeting with former Prime Minister Shinzo Abe, Sugas old boss, to come up with recommendations for the current administration on how it should steer the post-pandemic economy. As it is, the focus on things like cutting the cost of mobile phone service and making fertility treatments availability to women is too granular, Yamamoto said.

Instead, he wants to see Suga reaffirm a commitment to supporting monetary policy and getting inflation up to the BOJs 2% target, which was a central goal of

Abenomics.

Suga is too micro-oriented, Yamamoto said. When he became premier, I voiced my concern about his lack of macro-economic policies, and my concerns have turned out to be warranted.

Yamamoto also said:
  • With reflationist Asahi Noguchi next month joining the BOJs policy board, the nine-member board will include four strong proponents of stimulus, which shows that monetary policy will remain in an easing mode.
  • The BOJs buying stock funds shouldnt be allowed to affect the markets normal functioning. But right now the BOJ doesnt have a choice, except to keep buying bit by bit and holding until inflation nears 2% and the economy gets overheated.
  • Whoever succeeds BOJ Governor Haruhiko Kuroda should be willing to do more quantitative easing in cooperation with government spending.

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