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January 28, 2022

Macro view: Japan economic recovery to strengthen this year

The IMF has urged the Bank of Japan (BOJ) to scale back emergency pandemic support and raise the consumption tax rate, as well as hike property and capital income taxes once the economy recovers from the pandemic-induced stagnation.

Wonk Monk

Wonk Monk, an economic policy activist, shared an article on the International Monetary Fund (IMF) urging Japan to scale back pandemic-relief measures as the economy recovers, while continuing to support households worst hit by the virus crisis. The agency also recommended on raising taxes on property and capital income in the long run.

The IMF stated that Japan’s recovery from the coronavirus pandemic is likely to strengthen this year. Therefore, once the country recovers completely, it should resume efforts to rein in its huge debt, such as by cutting down the increasing medical costs for a rapidly ageing population.

The agency also suggested that given the uncertainty of the pandemic, the fiscal policy should be both nimble and flexible. Meanwhile, the Bank of Japan (BOJ) must keep easy policy as inflation to hover around 1%, as price momentum picks pace further on higher import costs and robust domestic demand. On monetary policy, the IMF urged the BOJ to continue its massive stimulus programme and be ready to cut interest rates if inflation momentum remained weak.

John Ashcroft

John Ashcroft, a lawyer, lobbyist, and former politician who served as the US attorney general in the George W Bush administration, senator from Missouri, and governor of Missouri, shared an article on the US Fed ready for interest rate hike in March with expectations of a strong job growth amid the Covid-19 pandemic.

Fed officials believe that the economy is strong, the labour market is close to full employment and that it is time to address the high inflation caused by the pandemic. Fed Chair Jerome H. Powell further reinforced the expectation that the Fed would continue to make additional increases in 2022, at a news conference held on 26 January.

Raising interest rates is the Fed’s primary tool for cooling an overheating economy, as it increases the cost of borrowing and alerts consumers and companies about spending. The Fed has kept interest rates near zero since the Covid-19 outbreak, aiming to support the economy.

The Fed Chair maintained that it has been a historic recovery from the pandemic despite the growing challenges, especially high inflation. A record 6.4 million jobs have been revived in 2021, pushing the jobless rate to below 4%. Additionally, the stimulus provided by the Fed and Congress have helped boost growth as successive virus waves hit the US economy.

Claudia Sahm

Claudia Sahm, a senior fellow at the Jain Family Institute, and former director of macroeconomic policy at the Washington Center for Equitable Growth, tweeted on the urgency of controlling the Covid-19 pandemic to curb US high inflation. She also stated that the millions of Covid deaths is an infinite price paid for inaction.   

Sahm emphasised that she would continue to link Covid-19 and inflation, stating that Covid’s fingerprints on inflation are unmistakable. For instance, consumer prices rose by 7% in 2021 in the US, the fastest in 40 years, and Covid deaths doubled to more than 800,000 in the same year. Therefore, the two facts are bound together.

Containing the Covid-19 pandemic, as a result, remains the only solution to controlling the current inflationary pressures, labour shortages, and supply chain disruptions, she added.

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