Japan’s Incoming Prime Minister on Monetary Policy

By Leika Kihara

TOKYO (Reuters) – Japan’s incoming prime minister, Shigeru Ishiba, stated on Sunday that the country’s monetary policy should remain accommodative. This stance suggests the need to maintain low borrowing costs to support a fragile economic recovery.

Ishiba’s remarks seem to indicate a shift from his previous criticism of the Bank of Japan’s aggressive monetary easing policies.

“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 potential interest rate hikes by the central bank.

He emphasized that, from the governmental perspective, monetary policy must continue to be accommodative given the current economic conditions.

On the topic of fiscal policy, Ishiba aims to compile a package of measures soon to mitigate the economic impact of rising living costs, particularly focused on supporting low-income households.

Ishiba, a former defense minister, is set to become prime minister on Tuesday after securing the presidency of the Liberal Democratic Party on Friday.

Following his election, Ishiba indicated that monetary policy would generally remain loose but hinted that he would not oppose any further increases in the currently near-zero interest rates.

The Bank of Japan (BOJ) ended negative interest rates in March and raised short-term borrowing costs to 0.25% in July, marking a significant shift away from a decade-long radical stimulus program.

BOJ Governor Kazuo Ueda has expressed readiness to raise rates further if Japan progresses towards achieving the bank’s 2% inflation target.

Ishiba conveyed in August that the BOJ was on the “right policy track” by ending negative rates and endorsed the normalization of monetary policy, suggesting it could enhance industrial competitiveness. However, he cautioned this month that Japan must prioritize fully exiting deflation, highlighting weak consumption signals.

The yen, which declined on Friday following news that a dovish rival would enter the LDP leadership race, rebounded upon Ishiba’s victory.