With the Japanese economy growing above its potential rate, the nation needs structural reforms rather than a big dose of government spending, according to Susumu Takahashi, a member of the government’s economic and fiscal policy council.

Strong exports and resilient domestic demand have set the economy on the longest run of expansion since 2006. And upcoming data for the quarter through June 30 are likely to show the effect of a previously approved fiscal stimulus package is already trickling in, Takahashi, 64, said in an interview.

“The economy doesn’t need a stimulus package right now and there’s no reason for a supplementary budget,” he said on Tuesday. Takahashi, who is chairman at the Japan Research Institute, said properly targeted spending within the regular budget is sufficient.

Japan’s potential growth rate stands at 0.8 percent, according to the Cabinet Office, compared with real growth in gross domestic product of 1.2 percent in the fiscal year through March 2017.

Takahashi’s comments come as a group of ruling-party lawmakers calls for greater spending in order to help the plunging support rate for Prime Minister Shinzo Abe. Some even suggest cutting the sales tax instead of raising it in 2019 as planned. Abe is expected to reshuffle his cabinet in early August in a bid to regain support.

Read more on talk of a fiscal boost from LDP members.

Investors aren’t factoring in a big change in government spending, said Soichiro Monji, the general manager of the economic research department at Daiwa SB Investments Ltd. in Tokyo.

“I see little expectation for it,” Monji said on Thursday. “The problem is not economic weakness at all. Even if they add fiscal stimulus, things won’t change at all as long as Abe makes careless remarks, ministers make verbal blunders or he tries to pass a bill forcibly.”

Takahashi also said that weak tax revenues last year don’t leave enough money for a large supplementary budget. He’s also cautioned against the government issuing more debt to finance public works projects, which give only a temporary lift to the economy.

“I personally want the government to make firm progress on structural reforms, which I think would help regain popular support,” Takahashi said.

He stressed that two key government targets for addressing the nation’s debt load are equally important.

One is the debt-to-GDP ratio, which the government added to its assessment of fiscal health in June, after input from the policy council. The other is the goal of surplus in the primary balance.

“If we just focus on the primary balance target, we can’t do necessary spending,” he said. “We should be flexible. But we can’t keep going like that forever. We must do structural reforms and boost the growth rate at the same time.”

Any increase in government spending must be tied to efforts to enhance productivity and raise the nation’s low growth potential rate, said Takahashi said.

Source:
courtesy of BLOOMBERG

by Yoshiaki Nohara

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