Ready to roll: Japan’s finance minister prepared to boost economy

Japan’s Finance Minister Taro Aso says he is ready to give the world’s third-largest economy a boost, as it struggles with the effects of the trade war between the United States and China.

But he said Japan remains on course for a moderate recovery thanks to robust domestic demand, signalling that no immediate, additional measures were necessary to ease the pain from a sales tax increase that took effect earlier this month.

“Given uncertainty over the global economy, exports are falling and weighing on manufacturers’ output. But the weakness has yet to spread to non-manufacturers or domestic demand,” Aso told reporters after attending a Group of 20 finance leaders’ working dinner.

“If we need to compile some form of an economic stimulus package, we are ready to take various types of fiscal measures flexibly,” he said.

While global risks are nowhere near those seen in the aftermath of the collapse of Lehman Brothers in 2008, Aso said that in order to fight the next crisis, Japan must deploy a mix of government-led action, which economists refer to as fiscal measures, and to make it easier for companies and individuals to borrow money, known as monetary policy.

“When you look back at the problems Japan faced, including deflation, they can’t be fixed by monetary policy alone. You need a coordinated monetary and fiscal response,” he said.

Japan’s economic growth in the second quarter of 2019, which came in at 1.3 percent was slower than initially expected. 

However, Aso said he still expected a moderate recovery in global growth to continue through next year.

Prime Minister Shinzo Abe proceeded with a twice-delayed increase in the sales tax rate to 10 percent from 8 percent in October as part of efforts to rein in Japan’s huge public debt.

The government has taken steps to ease the effects of the tax increase, with measures such as offering shopping vouchers. The previous increase to 8 percent from 5 percent tipped the economy into recession.

Still, some analysts worry the higher levy may exacerbate the pain for Japan’s export-reliant economy, which is already feeling the pinch from the US-China trade war.

International Monetary Fund Deputy Managing Director Mitsuhiro Furusawa has said Japan can ramp up fiscal stimulus if the hit to the economy from October’s sales tax rise proves bigger than expected.