Is Japan pursuing Helicopter policies?

Japanese prime Minister Shinzo Abe, ended speculations over consumption tax rise yesterday, by announcing that he plans to delay the rise in consumption tax from 8% to 10%, until October, 2019. It was raised from 5% to 8%, back in 2014, which followed sharp contraction of Japanese economy that led Bank of Japan (BOJ), to increase its bond buying pace to ¥80 trillion per annum.

This is classical economics, when fiscal policy is tightening, monetary policy to smoothen the effect by easing. Now, yesterday, was a mark shift from that prudent policy and Japan’s economy falls back to the realm of loose fiscal policies with even looser monetary policy.

One needs to note that, Japan’s debt to GDP ratio is worst in the developed world and currently is around 230%. Japan’s fiscal deficit has improved from -8.9% of GDP, back in 2009 to -6% as of 2015. Original aim of Abenomics was to push Japanese economy into primary surplus by 2020. With yesterday’s move, that idea is now pushed back.

Abenomics I is now shattered are far away from its original form – monetary easing, fiscal discipline, structural reforms.

Many have welcomed the move since it is expected to improve Japanese economic growth. Credit rating agency, Standard & Poor raised forecast for Japan’s GDP from 0.4% to 1%. It may also be called prudent since 30 months delay, unlikely to worsen Japanese debt and interest rates but it removes the risk to the economy but at the same time it can’t be denied, Japan with its quadrillion debt and aggressive BOJ policies, moving to the realm of the Helicopter.

It is becoming increasing difficult to foresee, BOJ reversing its easing, which will left it with no options but to dive into the realm of the “Helicopter Money” and permanently increase the base.