By Leika Kihara
TOKYO (Reuters) – Sanae Takaichi, Japan’s Minister in charge of Economic Security and a prominent contender in the ruling party’s leadership race, asserted on Saturday that the central bank should maintain its ultra-low interest rates to bolster the delicate economic recovery.
During a press conference with the nine candidates in the leadership race, Takaichi commented on the Bank of Japan’s (BOJ) recent interest rate hikes, describing them as premature. “Frankly, it was too early,” she said. “Interest rates ought to be kept low,” added Takaichi, who is emerging as a leading candidate for the leadership of the Liberal Democratic Party (LDP).
Takaichi’s statements were consistent with her comments made on her personal YouTube channel on Friday, where she emphasized the importance of sustaining fiscal and monetary support for the economy.
In March, the BOJ abandoned negative interest rates and increased short-term rates to 0.25% in July, based on the belief that the economy was on track to sustainably achieve its 2% inflation target. BOJ Governor Kazuo Ueda has indicated the bank’s readiness to raise rates further if inflation remains around 2% in the coming years, coupled with robust wage growth, as currently projected.
The LDP is set to elect a new leader on September 27, with the winner expected to become the prime minister due to the party’s parliamentary majority. Incumbent Prime Minister Fumio Kishida announced last month that he would step down as LDP chief in September, effectively concluding a three-year tenure as the leader of the world’s fourth-largest economy.
A majority of economists polled by Reuters anticipate another rate hike from the BOJ this year, with more than three-quarters predicting an increase in December. None of the respondents expected a rate hike next week.
Most LDP candidates have advocated for a spending package to mitigate the impact of rising living costs, although they have not detailed how to finance these additional expenses.
Taro Kono, the minister in charge of digitalization, diverged slightly, suggesting that increased spending or maintaining generous subsidies would not necessarily stimulate economic growth. Kono emphasized the need for Japan to consider how to improve fiscal health as rising interest rates will elevate the cost of servicing its substantial public debt.
Another candidate, Toshimitsu Motegi, a ruling party official, proposed that the government could finance various spending initiatives by utilizing the significant reserves allocated for currency intervention. While most of these reserves are currently invested in U.S. government bonds, he suggested that Japan could consider investing part of the funds in other assets to achieve better returns.
