Japan’s Katayama: Debt expansion is global trend, fiscal policy targeting growth and sustainability

Japanese Finance Minister Satsuki Katayama stated on Tuesday that debt expansion is a global trend, and Japan is implementing fiscal policies aimed at promoting growth and sustainability. Katayama also noted that US Treasury Secretary Bessent highlighted US strategies to manage debt. The G20 addressed global imbalances, emerging market debt, and financial literacy during the meeting.

Bessent referenced US strategies to manage debt, and a conversation with JPMorgan CEO Jamie Dimon praised Japan's recent reforms. The Group of Seven (G7) committed to currency interventions that align with US-Japan policies. However, specific FX levels were not discussed during the G20 meeting. The meeting provided a valuable opportunity to deepen understanding of joint FX interventions, according to Bessent, who believes that a new approach is necessary to address Japan's deflation outlook.

He emphasized that increasing growth potential and productivity through domestic investment is the right path. The Bank of Japan (BoJ) currently sets monetary policy in Japan, aiming for an inflation target of around 2%. The BoJ embarked on an ultra-loose monetary policy in 2013 to stimulate the economy and fuel inflation amidst a low-inflationary environment.

The bank's policy includes quantitative and qualitative easing (QQE), where the BoJ prints money to buy assets such as government or corporate bonds, providing liquidity. In 2016, the BoJ further loosened policy by introducing negative interest rates and directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, moving away from its ultra-loose monetary policy stance.

The massive stimulus led to a Yen depreciation against major currency peers, which intensified in 2022 and 2023 due to policy divergence between the BoJ and other central banks. The BoJ's policy contributed to a widening differential with other currencies, causing the Yen's value to decline. This trend began to reverse in 2024 when the BoJ abandoned its ultra-loose policy stance.

A weaker Yen and rising global energy prices caused Japanese inflation to exceed the BoJ's 2% target. Additionally, a prospect of rising salaries in Japan, a key element fueling inflation, also contributed to this move.