Japan’s Economic Revitalization Minister, Akazawa Ryoichi, indicated that Prime Minister Shigeru Ishiba does not unconditionally support an interest rate hike by the Bank of Japan (BOJ). This highlights the viewpoint that the new cabinet is unlikely to favor hasty rate increases by the central bank.
Akazawa noted that claiming Prime Minister Ishiba supports rate hikes is not entirely accurate, as any increase must meet specific conditions. The immediate priority is addressing deflation concerns. Known for his close relationship with Ishiba, Akazawa’s comments suggest that the government is signaling BOJ Governor Kazuo Ueda against prematurely raising borrowing costs again. This solidifies market expectations that a rate hike during the BOJ policy committee meeting later this month is unlikely.
Akazawa’s statements carry weight since he can attend BOJ’s policy meetings. His predecessor frequently attended these meetings, though with limited commentary on monetary policy.
Despite BOJ’s key inflation indicators surpassing the 2% target for two consecutive years, the Japanese government has not declared an end to deflation, citing the potential for prices to decline again. Ueda emphasized that ending deflation is dependent on the government, and BOJ will continue to implement policies to achieve stable inflation. BOJ ended its large-scale monetary easing program in March and hiked the policy rate to 0.25% in July.
It remains unclear if BOJ must wait longer than currently expected for another rate increase. Most observers predict the next hike will occur in January. The summary of opinions from the BOJ policy committee’s September meeting released earlier this week reflected cautiousness about the economic outlook, aligning with the government’s stance.
