New PM Takaichi’s Economic Stance Seen Pushing Yen Lower

Tokyo, Oct. 22 (Jiji Press)–New Japanese Prime Minister Sanae Takaichi’s economic policy stance has raised concerns that it could discourage the Bank of Japan from raising its policy interest rate, potentially weakening the yen and driving up import prices. Takaichi has vowed to inherit the “Abenomics” economic policy mix advocated by the late former Prime Minister Shinzo Abe, which centers on aggressive monetary easing, calling on the BOJ to align its policy with the government’s economic strategy. Her stance may affect the BOJ’s decision-making, as the central bank appears to be considering when to further raise its policy rate. “The ultimate responsibility for macroeconomic policy rests with the government,” Takaichi said at her inaugural press conference Tuesday, reiterating her view that the government should be involved in the BOJ’s monetary policy. The prime minister said current inflation is being driven mainly by a supply shortage of food products such as rice, while expressing caution about a possible rate hike that could curb demand. “It is of utmost importance for the BOJ to communicate and closely cooperate with the government,” she said. Nippon Ishin no Kai (Japan Innovation Party), the new coalition partner of Takaichi’s ruling Liberal Democratic Party, has submitted legislation to revise the Bank of Japan law in the past. Now that the coalition government has been formed between the LDP and Nippon Ishin, Noriatsu Tanji, a bond strategist at Mizuho Securities Co., said “it is easy to imagine that government interference in monetary policy will intensify.” At the BOJ’s policy-setting meeting last month, two of the nine Policy Board members with voting rights proposed raising the policy rate to 0.75 pct. While the proposal was voted down and the board decided to keep the policy rate unchanged, it has sparked deeper discussions on potentially changing the central bank’s policy. Meanwhile, new Finance Minister Satsuki Katayama declined to comment on the BOJ’s monetary policy at a press conference Wednesday. Former Prime Minister and newly appointed LDP Vice President Taro Aso has also avoided taking a reflationary stance. It remains to be seen how far Takaichi intends to influence the BOJ’s policy decisions. Delays in rate hikes may prompt market participants to sell the yen against the dollar, given the wide gap between Japanese and U.S. interest rates. “The continuation of monetary easing will fuel inflation due to a weaker yen, which could undermine the stability of the economy and financial markets,” Takahide Kiuchi, executive economist at Nomura Research Institute Ltd., warned. END [Copyright The Jiji Press, Ltd.]