The Real Situation of Modern Monetary Theory in Japan

Abstract

Modern Monetary Theory（MMT）attracts attention and debate all over the world. MMT argues that governments that can issue currency will never go bankrupt. The primary constraint on government spending is not the fiscal deficit but inflation. The Japanese government has historically pursued deficit spending to stimulate the economy and fund various projects. MMT has its roots in the works of economists like Abba Lerner and Hyman Minsky and debate among economists and policymakers still continues. The focus should be on the fact that banks can create money through lending and the government can influence money supply through taxation and spending policies. While critics claim that excessive government spending has led to fiscal collapse. Japan actually has one of the highest levels of government debt relative to GDP among developed countries. This debt is largely financed through the issuance of Japanese Government Bonds（JGBs）which are subject to monetary easing through exchanges between the government, the Bank of Japan, and commercial banks. The situation is dynamic and subject to evolving economic conditions and policy choices. We will analyze this situation in Japan and discuss the legitimacy of MMT.departmental bulletin pape