Japan adviser to PM Abe: need 10 trillion yen in stimulus for next two years

TOKYO (Reuters) - Japan should spend 10 trillion yen ($99.83 billion) on fiscal stimulus both in fiscal 2017 and in fiscal 2018 to offset a lack of demand in the economy and eliminate the risk of deflation, an adviser to Prime Minister Shinzo Abe said on Tuesday.

Abe has already compiled a stimulus package for the current fiscal year with 7.5 trillion yen in spending, but the government needs to spend more and do so quickly to boost demand, Satoshi Fujii, an adviser to Abe, told Reuters in an interview.

"We need to spend 10 trillion yen next fiscal year and another 10 trillion yen the following fiscal year to eliminate the deflationary gap," he said.

The Bank of Japan should stick with its existing quantitative easing but should examine its negative interest rate policy and decide how to proceed in the future, Fujii said.

"The important point is the velocity of spending. The problem with fiscal stimulus up until now is the velocity of spending was not high enough," said Fujii, who is also a professor at Kyoto University.

"There are a lot of opinions about negative rates, but I would like the BOJ to review this and decide what to do from here on."

Fujii's comments suggest the government could rely more on fiscal stimulus and less on additional monetary easing to revive Japan's fortunes after the economy ground to a halt in the second quarter due to weak consumption and exports.

($1 = 100.1700 yen)

(Reporting by Stanley White and Ami Miyazaki; Editing by Simon Cameron-Moore)