Japan Policy Theory and Macro Estimates for Japan's Growth Strategy

This report outlines a macro strategy for Japan involving a transition to a high-pressure economy, advocating for increased public-private strategic investment to drive growth and improve fiscal health. By targeting an output gap of 2% and a net domestic fund demand of -5%, the authors project long-term GDP expansion and debt-to-GDP improvement.

Key Takeaways

• 1.Japan should adopt a 'high-pressure economy' with an output gap above 2% to move away from deflationary cost-cutting toward growth-oriented investment.
• 2.Expanding net domestic fund demand to -5% implies an annual shortfall of JPY30trn in public-private investment, which is necessary to fuel long-term productivity.
• 3.If strategic investment successfully induces corporate investment, nominal GDP could reach JPY1,100trn by FY40 with a debt-to-GDP ratio improving to ~150%.

Table of Contents

• Japan: policy theory and macro estimates for Japan's growth strategy
• Macro estimates for Japan's growth strategy
• Case of the spell of fiscal austerity
• Case of restrained proactive public finance
• Case of overcoming the spell of fiscal austerity
• Case of full proactive public finance
• Case-by-case paths for nominal GDP and the government debt-to-GDP ratio
• Macro Research advanced tools
• Red Mount Analytics

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