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Has Monetary Policy Reached its Limits?

Sunil Swami, Chief Investment Officer | JUL 27, 2016

Japan Appears Ready to Introduce More Stimulus

Since the great recession of 2008/2009, central bankers have supported global growth through unconventional monetary policies such as quantitative easing, negative interest rates and purchases of corporate bonds.  While these policies helped ensure that a severe recession did not become a depression, they have failed to revive robust global growth.  There is a now a sense among policy makers that the effectiveness of these efforts might have peaked, and some believe more fiscal stimulus is needed.

Japan appears to be taking the first step in that direction.  The country’s Prime Minister, Shinzo Abe, followed up his recent victory in the upper house by announcing a rather large $265 billion stimulus package.  Details of the package should be announced next week, but it is already expected to include fiscal outlays, boosting take home pay and increasing minimum wage. Proposals also call for cutting premiums paid by workers into the country’s unemployment insurance system.

Along with Abe’s promise of a bigger stimulus package, the Wall Street Journal reported that Japan is considering 50-year bonds for the first time. The paper said the move could validate thoughts that the government’s efforts to revive growth is starting to blur the lines with “helicopter money”, particularly if the Bank of Japan subsequently purchases the debt. 

How Abe’s renewed stimulus efforts will play out remains to be seen, but we expect economists, politicians, and business leaders around the world to be paying close attention.

About the Author

Sunil Swami, Chief Investment Officer

Mr. Swami has decades of experience in the investment management and related fields.

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