Japanese political figure Tamaki wants to unleash an economic boom inspired by Yellen

By Makiko Yamazaki and John Geddie

TOKYO (Reuters) – Yuichiro Tamaki, the leader of a small opposition party that can now wield outsized political influence, has long wondered how best to revive a moribund Japanese economy trapped by deflation.

A former bureaucrat at the Ministry of Finance, his early career was steeped in fiscal conservatism, yet he became convinced that the easy “Abenomics” fiscal and monetary stimulus policies favored by Japan’s leaders for about a decade did not go far enough .

His light bulb moment came when he read a 2016 speech by then-Federal Reserve Chairwoman Janet Yellen about running a “high-pressure economy” – one in which demand exceeds supply in a tight labor market to stimulate growth and dispel deep-seated economic gloom.

“I felt like something that was hazy in my mind had been cleared,” Tamaki said in a 2021 blog post praising Yellen’s proposals.

Tamaki, 55, now advocates aggressive tax cuts and social spending. As leader of the People’s Democratic Party (DPP), he might get the chance to put his theories to the test.

The October 27 elections left the ruling Liberal Democratic Party (LDP) and its coalition partner Komeito leading a vulnerable minority. Prime Minister Shigeru Ishiba’s government has sought cooperation with the DPP, especially on economic measures, and Tamaki has said he could support coalition policies where they can find common ground.

But while some economists say Tamaki’s plans could boost a still-fragile economy, others are wary they could increase Japan’s debt pile, upset investors and undermine the central bank’s attempts to could complicate the country’s decades of massive monetary stimulus.

UNORTHODOX APPROACH

Hailing from a small, rural town in western Japan, Tamaki studied law at the University of Tokyo before beginning a thirteen-year stint as a career bureaucrat in 1993, just after the bursting of the country’s real estate and stock bubble.

Despite climbing the ladder to get a job in LDP Prime Minister Junichiro Koizumi’s cabinet, Tamaki decided to join the opposition and run for office in the 2005 elections.

He lost, spending four years in the political wilderness, but then returned to win a seat in 2009, when the opposition ousted the LDP for the second time in Japan’s postwar era.

Asked why he rejected fiscal conservatism, Tamaki told a news conference on Friday that he had seen firsthand how the policy had failed to prevent a nearly 30-year decline in real wages.

Tamaki is not the first to advocate largesse to revive Japan’s economy. Some predicted half a century ago that the United States could overtake the United States to become the world’s largest, but last year it slipped below Germany to fourth place.

Abenomics, named after the late Prime Minister Shinzo Abe who led the LDP back to power in 2012, increased the money supply, boosted government spending and sought corporate governance reforms. But it didn’t work, Tamaki says, because demand was suppressed by successive increases in consumption taxes.

Tamaki’s vision, which includes increasing basic tax-free income, temporarily halving the country’s consumption tax and cutting gasoline taxes, has gained significant support among younger voters.

He has also said the Bank of Japan should pause its efforts to raise interest rates for at least six months.

While his rise to prominence was tarnished this week by revelations of an extramarital affair, his party has rallied behind him in support.

WHO PAYS?

As the ruling coalition discusses the DPP’s policy proposals, the Finance Ministry, in apparent protest, estimates that Tamaki’s proposed increase in the income tax threshold could cause a drop in tax revenues of more than 7 trillion yen ($46 billion).

But Tamaki is unfazed, pointing out that inflation in Japan remains low compared to other developed economies and that there is room to spend given the huge tax revenues in recent years.

Takuya Hoshino, chief economist at Dai-ichi Life Research Institute, said Tamaki’s policies could be effective in boosting long-stagnant consumption.

But other economists say his policies risk fueling inflation and increasing the national debt, which is already more than twice the size of Japan’s economy.

The policy is “short-sighted” and could discourage investors from the bond market at a time when the central bank is trying to reduce its holdings of government bonds bought through its emergency quantitative easing program, said Norihiro Yamaguchi, a senior economist at Oxford Economics in Tokyo . .

“This is a huge tax burden and ultimately someone has to pay,” he said.

(Reporting by Makiko Yamazaki and John Geddie; additional reporting by Tim Kelly; Editing by Edwina Gibbs)