Photo/IllutrationHiroshi Ando, a lawmaker with the ruling Liberal Democratic Party, addresses a study group of Diet members on April 22. (Tetsuya Kasai)

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Finance Ministry officials are taking extraordinary measures to prevent modern monetary theory (MMT), an economic approach that advocates government spending, from gaining traction in Japan and possibly heightening opposition to a planned tax hike.

The ministry has distributed documents to policy advisers blasting MMT as a ridiculous idea.

“It is not worthy of comment because it is something only being promoted by those who want to spend a lot of government money,” a high-ranking Finance Ministry official said about MMT. “It is an expression of (economic policy) hitting a roadblock.”

While considered unorthodox by many mainstream economists, MMT has increasingly gained attention in the United States and is now catching the interest of Japanese lawmakers.

A major claim of MMT is that any nation that issues its own currency faces no risk of default. Therefore, governments should drop their fear of fiscal deficits and continue spending to expand their economies.

On April 22, about 10 lawmakers held a study session on MMT. The group was formed by younger members of the ruling Liberal Democratic Party who wanted to look further into fiscal issues.

The meeting was the group’s third on MMT since 2017.

One participant said the public may finally be catching on to the theory, citing an interview that appeared in The Asahi Shimbun with Stephanie Kelton, an economics professor at Stony Brook University in New York who is a major proponent of MMT.

The main speaker at the April 22 gathering was Takeshi Nakano, a bureaucrat in the Ministry of Economy, Trade and Industry who moonlights as an economics commentator.

Nakano is known for not following the crowd. He has been quite vocal in opposing the Trans-Pacific Partnership free trade arrangement long pushed by his own ministry.

Nakano explained at the meeting that the government could spend freely without worrying about fiscal collapse because it issues its own currency.

He pointed out that the Finance Ministry itself in 2002 informed foreign bond rating agencies that advanced nations that issue government bonds in their own currency would never default.

Even if the Japanese government accumulated 5 quadrillion yen ($45.2 trillion) in debt, there would be no problem, Nakano told the meeting.

That staggering figure is about five times Japan's current debt. Japan's ratio of public debt to gross domestic product is currently one of the worst in the world.

Nakano said the government should use the debt to increase spending on public works projects as one way to generate inflation and move the economy out of a deflationary state.

He also took issue with the government's insistence on concentrating on the primary balance as an indicator for rebuilding the fiscal condition.

Achieving a surplus in the primary balance would mean tax and other revenues could cover all government spending programs without the need to issue new government bonds.

But in Nakano’s view, greater attention should be placed on the inflation rate.

Under MMT, all a government would have to do if faced with a certain degree of inflation is cut off government spending.

According to Hiroshi Ando, one of the organizers of the study session, some participants said they found certain aspects of MMT difficult to believe, but there was no outright opposition to the theory.

He added that he would continue working to spread an understanding of MMT.

“In order to come up with economic policy, there is a need for a correct understanding of the true nature of currency and what taxation means,” Ando said.

Finance Ministry officials are wary about the spread of MMT because they fear it would hurt their arguments for correcting the central government’s fiscal condition.

A subcommittee of an advisory panel to Finance Minister Taro Aso that considers issues related to the fiscal structure will hold its first meeting this fiscal year on May 17.

Ministry officials distributed documents to panel members explaining what would be discussed. Among the documents were data clearly opposed to MMT.

The views of 17 well-known economists who have criticized MMT were compiled for the documents.

The fact ministry officials went to so much trouble to round up opposition to a theory that has never been discussed in the subcommittee shows how worried they are about it gaining popularity in Japan.

Ironically, however, some elements of Prime Minister Shinzo Abe’s Abenomics package of economic measures resonate with MMT.

Soon after Abe began his second stint in office, the government and the Bank of Japan issued a joint statement that set an objective of a 2-percent increase in consumer prices. That is strikingly similar to the MMT methodology of setting inflation rate goals to determine if government spending is at an adequate level.

Moreover, although the debt-to-GDP ratio has more than doubled, the government compiled a record fiscal 2019 budget of 101.46 trillion yen.

The BOJ continues with an ultra-loose monetary policy that makes such government spending possible.

Despite such developments, Japanese government bonds have not lost value and interest rates have not risen.

Kelton called Japan an “instructive example” of how MMT works because despite a debt-to-GDP ratio that is three times that of the United States, interest rates have not risen and inflation is not a problem.

Because MMT downplays rebuilding the fiscal condition, some politicians who hate to face voters with a possible tax hike in the works could call for another postponement of the consumption tax rate hike with the Upper House election scheduled for this summer.

The Abe administration has already twice put off raising the tax rate from the current 8 percent to 10 percent, and attention is focused on whether the prime minister will go ahead with the planned hike in October.