Japan’s Practice of Modern Monetary Theory amid the Pandemic Recession

For more than two decades, Japan has been struggling with deflation. Modern monetary theory (MMT) provides an alternative policy option for the Japanese government to boost inflation and support economy growth. The recession triggered by the coronavirus pandemic has further enhanced the importance of MMT, despite criticisms by mainstream economists. In response to the impacts of the pandemic on the economy, the Abe administration rolled out a 117 trillion Japanese yen stimulus package. To date, Japanese public debt-to-GDP ratio has exceeded 230%. However, the support for the massive coronavirus stimulus—and its success in forestalling the worst possible outcome of broad shutdowns—is rooted in the MMT.