Photo/IllutrationPrime Minister Shinzo Abe answers questions from Liberal Democratic Party lawmaker Shoji Nishida in an Upper House Audit Committee meeting on April 4. At right is Finance Minister Taro Aso. (Takeshi Iwashita)

Prime Minister Shinzo Abe appears sympathetic to a theory that Japan’s financial deficit is no big deal, a stance that could put him at odds with the Finance Ministry and the central bank.

In an Upper House Audit Committee meeting held on April 4, lawmakers discussed Japan’s financial condition and the Modern Monetary Theory (MMT) that is gathering attention in the United States.

According to MMT, financial deficits should not be a big issue for countries that can borrow money with their own currencies. But opponents say MMT promotes wasteful government spending and could cause countries to collapse financially.

Abe at the meeting noted that Japan has a huge financial deficit, but “it has sufficient credibility.”

Shoji Nishida, an Upper House lawmaker of the ruling Liberal Democratic Party, mentioned MMT when he asked the government to increase spending.

“The Japanese government will never collapse financially if it increases expenditures (by borrowing money) with Japan’s own currency,” Nishida said.

Abe declined to commit to MMT, saying: “The government must refrain from making wasteful spending. We’re not carrying out MMT.”

However, the prime minister also said “When I ran in the LDP presidential election in 2012, I advocated a drastic monetary-easing policy, which is a prototype of Abenomics.

“At that time, I was told that if I implemented the policy, the prices of the government bonds would plunge and the yen would also nose-dive.”

In reality, Abe said, the prices of government bonds rose, resulting in a fall in their interest rates.

“The yen did not nose-dive, either,” he added.

On March 19, Abe held a two-hour meeting with Nishida and Satoshi Fujii, a former adviser to the Cabinet Secretariat, who opposes plans to increase the consumption tax rate. They exchanged their opinions on MMT.

Some regard Japan as “an example of success” of MMT.

The outstanding amount of the Japanese government’s financial deficit is about double the country’s gross domestic product, the worst ratio among developed countries. But interest rates in Japan remain low and stable.

Abe has put priority on economic development while postponing reconstruction of the government’s serious financial condition.

The prime minister apparently feels sympathetic to parts in MMT that support his Abenomics package of economic reforms.

But for the Finance Ministry, which is preparing for the expected consumption tax rate hike in autumn, MMT is a dangerous theory that makes light of restoring the government’s financial health.

“I have no plans to make Japan a testing site (for MMT),” Finance Minister Taro Aso said in the April 4 Audit Committee meeting.

Bank of Japan Governor Haruhiko Kuroda, who used to be a Finance Ministry official, also has a negative view of MMT.

“The idea of not taking financial deficits into account is an extreme assertion. I cannot accept it,” he said.