Japan’s incoming prime minister, Shigeru Ishiba, yesterday said that the country’s monetary policy must remain accommodative as a trend, signaling the need to keep borrowing costs low to underpin a fragile economic recovery.
It was not immediately clear whether Ishiba, who had been a vocal critic of the Bank of Japan’s (BOJ) past aggressive monetary easing, was taking a more dovish line with his remarks.
“It’s something the Bank of Japan, which is mandated to achieve price stability, will decide while working closely with the government,” Ishiba told public broadcaster NHK, when asked about further interest rate increases by the central bank.
Photo: Reuters
“From the government’s standpoint, monetary policy must remain accommodative as a trend given current economic conditions,” he said.
On fiscal policy, Ishiba said he would aim to compile a package of measures at an early date to cushion the economic blow from rising living costs, with a focus on helping low-income households.
Ishiba, a former defense minister, is set to become prime minister tomorrow after winning the presidency of the ruling Liberal Democratic Party on Friday.
After his victory, Ishiba said monetary policy would broadly remain loose but suggested he would not push back against further increases in still near-zero interest rates.
The BOJ ended negative interest rates in March and raised short-term borrowing costs to 0.25 percent in July in a landmark shift away from a decade-long, radical stimulus program.
BOJ Governor Kazuo Ueda has signaled a readiness to raise rates further if Japan makes progress toward durably achieving the bank’s 2 percent inflation target, as the board projects it would.
Ishiba told Reuters last month that the BOJ was on the “right policy track” by ending negative rates and endorsed further normalization of monetary policy, saying it could boost industrial competitiveness. However, in an interview this month, he said Japan must prioritize making a full exit from deflation and warned of weak signs in consumption.
Former minister of health, labor and welfare Katsunobu Kato is set to become Japan’s next finance minister, according to Kyodo News, replacing Shunichi Suzuki to take on the job of steering the country’s finances through a period of economic change.
Kato helped guide Japan through the COVID-19 pandemic, when the country fared better than most of its G7 peers. The 68-year-old has played key roles in recent administrations and was a Ministry of Finance official before going into politics.
Kato would be taking on one of the highest-profile positions in the Cabinet, overseeing a range of policies from currency to budgets. Among the challenges he would face is Japan’s perennial problem of the largest debt load among advanced economies. The debt problem is set to become more complicated as the BOJ slowly moves toward more interest rate hikes, which would keep increasing debt-servicing payments.
In a Bloomberg interview last month, Kato said Japan should continue to aim for interest rates and prices to “keep moving.”
He said years of stagnant prices and rates “created structural distortions.” Kato has advocated for a balanced approach to managing fiscal health and seeking growth.
Kato’s predecessor Suzuki repeatedly said the government should watch the impact from rising yields on debt-servicing costs, warning that higher yields could weigh on finances.
Japan’s debt reached 255 percent of its GDP this year, according to the International Monetary Fund.
Additional reporting by Bloomberg
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