A Hokkoku Shimbun column discusses the possibility of boosting effective demand through fiscal spending against a backdrop of sluggish domestic demand, and considers the direction of future policy while addressing the Bank of Japan's rate hikes and the debate over the neutral interest rate.
While it has been pointed out that domestic demand remains sluggish even under the influence of monetary policy, external demand is said to have a positive effect on GDP through higher exports and lower imports. The column argues that it would be desirable to boost effective demand through fiscal spending while assessing trends in demand across the economy.
Looking ahead, the media tend to promote a narrative that the pass-through of petroleum-related product prices will gather pace, but the author does not regard this as the main scenario and instead treats it as one possibility.
In light of the pass-through of corporate prices to date and the size of the GDP gap, the view is expressed that boosting demand through fiscal spending under the initial budget would be more appropriate than raising interest rates.
The Bank of Japan estimates the neutral interest rate at approximately 1.75–2.0%, but the range of the estimate is wide, making it difficult to use in policy decisions. The argument is made that the Bank should focus on price trends and return to the starting point of the inflation target, at which point there would be no basis for raising rates.
The conclusion is that the government and the Bank of Japan should honor their commitment to the inflation target and must not allow the Bank of Japan to run out of control.