The press conference in FCCJ

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An economic slowdown is nearly certain after next month's sales-tax increase to 8 percent. With consumer confidence plummeting, exports sluggish and companies offering wage rises below the nation's inflation target, the question is how does Prime Minister Shinzo Abe and Bank of Japan Governor Haruhiko Kuroda steer the economy through this rough patch.

Many economists call for more monetary easing to cushion the hit from the higher levy. Richard Koo thinks otherwise, urging the central bank to "disengage" from its unprecedented stimulus, or risk surging borrowing costs that could fuel a collapse in confidence in the nation's fiscal sustainability. He says that Japan is at risk of falling into a "QE trap" of being unable to wind down its easing because of concerns over a yield spike.

He is known for coining the term "balance-sheet recession" to describe the aftermath of the bursting of Japan's asset bubble in the early 1990s. In his new Japanese-language book, the chief economist at Nomura Research Institute in Tokyo describes how this problem is spreading through the global economy.

Koo is a former Federal Reserve economist who wrote "The Holy Grail of Macroeconomics --Lessons from Japan's Great Recession". He has advised successive prime ministers on how best to deal with Japan's economic and banking problems.

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