Prime Minister Sanae Takaichi’s government invited Olivier Blanchard to speak at an economic panel as she seeks to showcase her administration’s so-called “responsible” fiscal approach to a global audience even as she increases spending.
Blanchard, professor emeritus at the Massachusetts Institute of Technology, delivered an address at the government’s economic and fiscal policy panel on Thursday, while Harvard University Prof. Kenneth Rogoff joined online. The two delivered presentations of their macroeconomic views before discussing them with panel members that included Cabinet ministers and Bank of Japan Gov. Kazuo Ueda.
It marked the panel’s first invitation of overseas experts since 2017.
Meeting materials indicate the economists struck a cautious tone over Japan’s fiscal position, rather than offering a full-blown endorsement of Takaichi’s push for aggressive investment spending. Blanchard said public investment should not automatically be debt-financed, while Rogoff noted countries are generally expected to keep primary balance deficits near equilibrium, especially at times when interest rates are rising.
Still, the invitations underscore Takaichi’s apparent effort to bolster international confidence in her fiscal policy. Earlier this year, her proactive stance on spending raised concerns over fiscal sustainability, pushing 30-year bond yields to record highs. Takaichi and Finance Minister Satsuki Katayama have partly blamed that move on global investors’ misunderstanding of the administration’s strategy.
“While moving forward with strategic fiscal spending, we aim to ensure fiscal sustainability and maintain market confidence by steadily reducing the debt-to-GDP (gross domestic product) ratio,” Takaichi said at the start of the meeting.
The strategy of calling economists from overseas mirrors the playbook of former Prime Minister Shinzo Abe, whom Takaichi considers her political mentor. During his time in office, Abe invited economists including Paul Krugman, Christina Romer and Joseph Stiglitz to similar panels, citing their views to support his policy positions that included delaying a consumption tax hike.
The latest move follows a December proposal by private-sector members of an advisory panel that called for clearer communication to maintain market confidence. Takaichi’s selection of panelists for that group included reflationists such as Masazumi Wakatabe, a former BOJ Deputy Gov. appointed by Abe, a choice that also highlights Takaichi’s parallels with the deceased premier.
While Abe often relied on foreign economists to support his easy money policy agenda, Takaichi appears more focused on signaling fiscal discipline to global investors.
Blanchard said Japan would need to achieve at least a primary balance in the coming years, a goal Takaichi has downplayed. The primary balance refers to the gap between government revenue and spending excluding debt servicing costs.
Takaichi has said the government will assess its primary balance target over multiple years rather than in a single fiscal year, while placing greater emphasis on reducing the debt-to-GDP ratio.