Modern Monetary Theory’s Reluctant Poster Child: Japan
Still, inflation did not budge. Interest rates stayed low.
Japan further embraced M.M.T.-style policies after Mr. Abe was elected prime minister in 2012. His plan, called Abenomics, called for more spending on public projects and a loose monetary policy. The economy has enjoyed modest growth under Mr. Abe, except for a brief recession in 2014.
“Mr. Abe says that Japan should not be made into a testing ground for M.M.T.,” said Takeshi Fujimaki, a Japanese lawmaker and an M.M.T. critic who is a director of the Upper House’s Committee on Financial Affairs. “But from my perspective, I’m thinking, ‘Aren’t you experimenting already?’”
Thanks to Mr. Abe’s unintentional experiment with M.M.T.-based policies, the Japanese economy is already in crisis, Mr. Fujimaki warned. Going any farther down that road will only lead to sharp inflation, he said.
But doesn’t Japan want inflation? asked Takeshi Nakano, a director in the Ministry of Economy, Trade and Industry’s information and commerce bureau, who is an outspoken supporter of the theory.
“If increasing the government’s red ink leads to inflation, then reducing that red ink creates deflation, right?” he told M.M.T.-curious lawmakers from Mr. Abe’s party during a seminar on the subject in late April, where he spoke in a personal capacity.
While Mr. Abe’s policies may resemble those put forward by supporters of the theory, they differ in one major way: Since his election, he has pledged to find a way to pay down the debts run up under his administration.
To fulfill that promise, Mr. Abe has said, he will raise Japan’s consumption tax to 10 percent from 8 percent by October. The pledge is controversial with lawmakers on both the left and right. A similar tax increase in 2014 may have pushed Japan’s already sluggish economy into recession. This time, the economy has already been weakened by China’s slowing demand for its goods.