Prime minister Yoshihide Suga wants to end Japanese deflation, so he’s trying something novel: thinking small.
In recent decades, his Liberal Democratic Party relied on enormous stimulus packages. It poured concrete as part of its ambitious public works schemes. It prodded the central bank to expand its balance sheet beyond the size of Japan’s $5 trillion economy. Aggressive borrowing to bail out megabanks and support modest growth shackled Tokyo with the biggest debt burden in the developed world.
Now, Suga’s government is trying a strategy that might actually work: shaking up Japan’s regional banks.
Suga, who inherited a recession when he took the reins on September 16, 2020, has been preoccupied with Covid-19. The economy may have briefly rebounded but the government is now dealing with a second wave of infections and grappling with a rising yen.
The blow to exports, and broader gross domestic product, is reviving the falling-price trend that Suga’s predecessor, Shinzo Abe, spent nearly eight years in power trying to defeat.
In November, core consumer prices dropped at their fastest pace in a decade. That 0.9% drop from a year earlier had finance minister Taro Aso’s team looking to the Bank of Japan to increase stimulus.
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