Today (Jan. 18), Koichi Hamada, the Yale economist, gave a talk entitled “How to Save the Japanese Economy from Prolonged Deflation” at the Foreign Correspondents Club of Japan. As a longtime critic of the Bank of Japan’s monetary policy, Hamada provided intellectual firepower for Shinzo Abe’s push for the 2% inflation target and was appointed senior economic advisor to the cabinet. I’ve been to several FCCJ sessions over the years and I have never seen it packed with so many people. Here’s my notion of the most salient points of the talk and Q&A.
1. Monetary policy should be the main policy tool to kick-start a deflationary economy.
2. Fiscal policy is a measure of last resort to be used when monetary no longer works.
3. There is no predetermined level beyond which buying more JGBs produces runaway inflation, so the authorities must keep a close watch to make adjustments as required.
Hamada was reluctant to criticize the Jan. 17 stimulus package but he could not completely hide his skepticism (see 2) and showed an obvious preference for going straight to the structural reforms that Heizo Takenaka presumably would be pushing as a member of the growth strategy team. To be fair, he named Hugh Patrick and Michael Woodford (no, not that Michael Woodford) as two economists whom he clearly took seriously that believed that a stimulus package was in order at this juncture.
It also appears that he will not be involved in policy details, particularly on the growth strategy. From some conversation that I overheard, I also gathered that he is here for the week but will normally communicate from New Haven by phone or email with Abe, which I assume will be more pull (by Abe) than push (by Hamada).
I didn’t take notes, so if you want to know more, you’ll have to buy his latest book, or ask some of the journalists who were there. If you’re familiar with the Tokyo scene, there were at least two regulars, one American, one German—I seem to see them every time I’m there—whose identities should be easy to guess.