Japan likely to adopt a soft 'helicopter money’ approach

Japan’s policymakers and central bankers are likely to adopt a soft helicopter money approach, instead of funding government spending through a mechanism of direct debt monetization, reports said. A helicopter is an approach in which the central bank directly finances budget stimulus through various programs, such as perpetual bonds.

The Bank of Japan is expected to remain under pressure to expand monetary stimulus at its rate review on July 28-29 as Prime Minister Shinzo Abe prepares to announce a huge spending package as early as before the month ends.

"It's clear the government won't do helicopter money in the strict sense," Reuters reported, citing a government official with knowledge of deliberations on what action to pursue.

In addition, speculations about the Japanese government’s most probable helicopter money approach came into the limelight after former Federal Reserve Chairman Ben Bernanke met PM Abe and BoJ Governor Haruhiko Kuroda during a private visit to Tokyo.

In a situation where the BoJ’s target rate of 2 percent inflation, seems unreachable and prices continue to steer fall on weak consumption, the central bank stands to justify adoption of further stimulus measures as a tool to prop up the drowning economy.

Meanwhile, lawmakers are calling for a package of about 10 trillion yen (USD94 billion) partly financed by new bond issuance, making full use of the BoJ's money printing that pushed 10-year yields into negative territory.

The BOJ is now buying roughly 110-120 trillion yen of bonds a year to meet a pledge to expand the balance of its holdings at an annual pace of 80 trillion yen, Reuters reported.