Japan needs a faster ‘third arrow’ growth strategy focused on promoting a carbon-neutral society, including establishing a financial center in Tokyo for Asian companies aiming to go green, said Hiroshi Nakaso, considered one of the country’s leaders. bank manager.
Massive monetary and fiscal stimulus was rolled out in 2013 as the first two ‘arrows’ of then Prime Minister Shinzo Abe’s ‘Abenomics’ policies revived the economy. But the third, structural reform, has barely taken off, failing to revive a potential growth rate stuck below 1%.
Measures to encourage capital spending on green projects would help raise Japan’s potential growth rate and serve as an enhanced growth strategy, said Nakaso, a former deputy governor of the Bank of Japan (BOJ).
“Abenomics was the right recipe to revitalize the Japanese economy. But there was too much burden on the first two arrows,” especially on monetary policy, he told Reuters on Friday.
As a result, he said in an interview, short-term interest rates remain negative and the BOJ’s balance sheet has ballooned to 4.5 times the level before the launch of its huge buying program. of assets.
“The third arrow had to fly faster and higher,” Nakaso said.
“Steps to achieve carbon neutrality would be a breakthrough for Japan, which was struggling to raise its growth potential,” he said, adding that the country’s huge savings could be tapped to boost investment in the economy. green innovation.
An increase in Japan’s potential growth would encourage companies to raise wages in the expectation of higher profits and give households greater purchasing power.
Nakaso is seen by BOJ insiders and observers as a strong candidate to succeed BOJ Governor Haruhiko Kuroda when his term ends next April. He is chairman of the Global Financial City Tokyo Organization, a group of public and private entities working to raise Tokyo’s profile as a financial center.
“If the public accepts more of higher prices, interest rates will come under upward pressure and allow the BOJ to normalize monetary policy,” said Nakaso, who has close ties to administration officials. of Prime Minister Fumio Kishida.
Among efforts to fund green initiatives, he said, Japan needs to boost Tokyo’s presence as an Asian market hub for transition bonds, which are issued by high-emission companies to transform their operations into greener companies.
Many Asian companies remain dependent on fossil fuels and may struggle to suddenly go green. Japan can help such companies by creating a vibrant transition finance market, Nakaso said.
“Transition funding is important not only for Japanese companies, but also for Asian companies that make up Japan’s supply chain,” he said.