The Fed’s Fiscal COVID Toolkit: Comparable to Japan's "Hyper-Interventionist" Policies?

By Unicast Entertainment

In its running series of interviews with the successful figures from across the financial spectrum, Unicast has most recently hosted Dr. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management. Among the vast array of topics addressed in the discussion, ranging from the low-inflation/low-unemployment conundrum to the current preferences of employers in banking and research, it was particularly interesting to learn about Dr.Kelly’s take on the Fed’s toolkit to tackle the COVID-19 crisis in the US, especially with regards to its aggressive fiscal commitments – can parallels be made with Japan's reportedly “hyper-interventionist” policies? Is such a policy inefficient and unsustainable in the COVID-19 context?


Over the last few decades, Japan has utilised its public pouch to fund policies that have been regarded as hyper-interventionist with, most recently, billions of dollars being spent for the purchase of equities on the Japanese stock market and aggressive QE pursuits. As of April 2019, the Bank of Japan held over 28 trillion yen in exchange-traded funds with a target to expand to 40 trillion by the end of November 2020. Ranked as a top 10 shareholder of 40% of all of Japan’s listed companies last year, such behaviour put the BOJ on track to be the largest shareholder in the Japanese stock market. While this ETF programme was a reaction to the GFC, Japan has adopted QE since 2001 and the nation already had a history of heavily protectionist trade policies and interventionism prior to such crises. Despite these measures being almost looked down upon by pro-market spectators as unsustainable and inefficient, today we see the US adopting such policy for almost 15 years now, with similar record-breaking QE expenditure and commitments to buy corporate bonds and equity. Is it consequently possible to draw an ideological parallel between the two nations? Is this a permanent shift in the spectrum towards interventionism for the US?

Is 21st Century US Policy Hyper-Interventionist?

Well, is it interventionist? According to Dr.Kelly, simply put – no. Blind investments across the market made via ETFs do not choose “winners or losers” and are, therefore, not to be considered interventionist. Having said that, he makes it clear that he regards the policy as undoubtedly inefficient: en-masse dumping of cash in ETFs to inflate asset prices and generate a wealth effect to stimulate spending, Dr.Kelly argues, “does not work.”

What about the parallels with Japan?

According to Dr. Kelly, when it comes to this parallel with Japan, the key difference is in policy execution. Indeed, the success of such a policy is contingent neither upon the “level of debt, nor the level of deficit, but on the rate of change of this deficit.” While Japan was consistent, its failure to “ramp this up at any point in time” (unlike the USA) has, according to Dr.Kelly, failed to pull the Japanese economy the way policymakers intend to bring the American one.

Demographics and the demand-side

In addition to this, Dr.Kelly mentions two more interesting variables that contribute to the discussion on Japanese difficulties. First of all, with a rising geriatric population, the daunting demographic variables present in Japan today significantly hinder consumption and growth and thus the effectiveness of implement policy. Secondly – and interrelated to the first issue – with full unemployment in Japan already, Dr.Kelly feels that the roots of the problem do not lie in the ineptitude of the supply-side, which tends to be the focus of a lot of Japanese policy, but in the inadequacy of the demand-side.

To conclude this discussion on the Fed’s response to COVID-19, Dr.Kelly states: “frankly, [the Fed] don’t need to do anything else.” He goes on to say that the optimal and “most powerful” combination of policy is keeping long-term Treasury bond rates low while maintaining massive fiscal intervention – which is already occurring in the US.

For more such incredible market insights and professional advice from Dr.Kelly, check out our full interview at

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