BOJ’s Ueda Faces Political Challenge in Raising Rates

Tokyo, Oct. 10 (Jiji Press)–Bank of Japan Governor Kazuo Ueda faces a major challenge in raising interest rates after Sanae Takaichi, who supports continued monetary easing, was elected leader of the ruling Liberal Democratic Party earlier this month. Since taking over as governor of the central bank on April 9, 2023, Ueda has pushed to normalize monetary policy after years of aggressive easing. He has reached the halfway point of his five-year term. “We’ve paved the way for an exit from the large-scale easing to some extent,” Ueda told a press conference in Osaka, a city in western Japan, on Oct. 3. The BOJ ended its negative interest rate policy in March 2024, putting an end to the easing campaign pursued by Haruhiko Kuroda, Ueda’s immediate predecessor. In July that year, the BOJ raised its policy rate to 0.25 pct, followed by another increase to 0.5 pct in January this year. In September, the central bank voted to start unloading its holdings of exchange-traded funds. The BOJ has kept rates unchanged since January to assess the impact of U.S. President Donald Trump’s high tariffs. At a meeting in September, however, two BOJ officials proposed raising the policy rate to 0.75 pct. Market players had bet that the central bank would raise rates when officials next meet on Oct. 29-30. But the likelihood of an early rate increase has diminished since Saturday when the LDP elected Takaichi as its leader and likely next prime minister. “It’s the government that must be responsible for monetary policy,” Takaichi said after the LDP vote. Etsuro Honda, a former government official who is an economic adviser to Takaichi, said the BOJ should be “careful” about raising rates. “Both Takaichi and Ueda share concerns that hastily raising interest rates risk reviving deflation,” a senior BOJ official said, predicting that the two are unlikely to have a tense relationship. Still, waiting too long to raise rates could result in rapid depreciation of the yen and rising prices. END [Copyright The Jiji Press, Ltd.]