TCA Financial: The Bank of Japan’s Governor, Haruhiko Kuroda, has said he will not consider using so-called ‘helicopter money’ or “direct monetary funding” to reverse the fortunes of Japan’s moribund economy and has stated that the very notion contradicts the law.
With inflation and economic growth still far below the central bank’s targets, debate in Japan has switched to a policy “Hail Mary” devised by Nobel laureate and economist, Milton Friedman in 1969. According to the theory, a government seeking to stimulate an economy could sell debt directly to the central bank in return for newly created money that could then injected directly into the economy using tax cuts or spending programs.
“Direct monetary funding is increasingly being discussed by academics and politicians as a way of revitalizing economies,” said Colin Phipps, chief economist at New York-based broker dealer, TCA Financial. “Jeremy Corbyn, leader of the UK’s Labour Party opposition, US Democratic Presidential nomination hopeful, Bernie Sanders and Shinzo Abe, Japan’s Prime Minister have all tabled the idea of using freshly-created money to boost lagging economies.”
Mr. Kuroda who has unleashed hundreds of billions of dollars-worth of quantitative easing in Japan is known for surprising markets but he suggests that “Helicopter” money would distort the lines between central bank monetary and government fiscal policy.
Mr Kuroda explained that a central bank could not implement fiscal policy like cutting taxes or deciding to fund infrastructure projects because it is not an elected body like a government.
TCA Financial says that while Mr. Kuroda may not be considering it, he may be signaling policymakers in Shinzo Abe’s government to begin working on a way to make direct monetary funding legal.

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