Japanese Government Panel Advises to Step Back From Stimulus Policies

A government panel in Japan has recommended a shift in policy focus away from crisis-mode stimulus towards achieving private sector-driven economic growth, particularly in response to rising domestic prices and interest rates. This proposal comes after the central bank's decision to end eight years of negative interest rates.

The panel's report, submitted to the government's top economic council, emphasizes the need for policy changes in light of increasing domestic prices, interest rates, and wage growth at a 30-year high amid job shortages.

The report suggests moving away from the crisis-mode approach that worked when prices were stable towards one that responds to rising prices and fosters sustainable growth driven by domestic demand. It advocates for Japan to reduce its reliance on heavy fiscal and monetary support that has historically underpinned the economy.

These recommendations, proposed by both the panel and private-sector members, aim to set the groundwork for the government's long-term economic policies. They prioritize achieving sustainable growth and a stable fiscal structure.

Private-sector members of the government council also stress the importance of continued cooperation between the government and the Bank of Japan to ensure wages continue to rise. With the central bank ending negative rates, there is an opportunity to transition to economic growth driven by private demand.

Additionally, the council discussed the impact of Japan's rapidly aging population on long-term economic growth. Estimates show that under current conditions, Japan's per-capita GDP is projected to rise modestly by 2060, highlighting the need for proactive measures to address demographic challenges.