Japan’s Takaichi Signals Acceptance of BOJ’s Latest Rate Hike

Sanae Takaichi Photographer: Andy Rain/EPA/Bloomberg Photo by Andy Rain /Bloomberg

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(Bloomberg) — Japanese Prime Minister Sanae Takaichi signaled her acceptance of the Bank of Japan’s interest rate increase last week by reiterating a standard line touting government coordination with the central bank.

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“We expect the central bank to work closely with the government and to conduct appropriate monetary policy, taking into account economic, price and financial developments, with the aim of achieving the 2% price stability target” in a sustainable manner, Takaichi said in parliament Monday.

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Takaichi — a well-known proponent of accommodative monetary policy — spoke after the BOJ raised interest rates last week to the highest level since 1995, in what was a widely expected move. She’s made similar comments in the past, calling on BOJ Governor Kazuo Ueda to conduct policy in such a way that considers the government’s policies. 

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Data last week showed nationwide consumer price growth held steady at 1.4% in May, thanks in part to government subsidies that kept energy costs down. Takaichi’s administration recently compiled an extra budget that will help continue to cushion the impact of the Middle East crisis on households in the coming months.

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Even so, the BOJ projects high energy prices from the conflict will put significant pressure on inflation. That’s raising expectations among economists that the central bank will hike again by the end of this year, perhaps as soon as September. 

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In the same session of parliament, a BOJ official cited the risk of inflation rising too fast.

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“In a situation like the current one, where there is a risk that underlying inflation could rise above the 2% price stability target, delaying the necessary adjustment in the degree of monetary accommodation could allow such risks to materialize, which in turn could weigh on economic activity later on,” BOJ Deputy Governor Ryozo Himino said.

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One policymaker dissented against last week’s decision — Toichiro Asada, a new board member appointed by Takaichi. She has another candidate set to join later this month, and the board’s two most stalwart hawks are scheduled to end their terms in about a year. That will give Takaichi the opportunity to nominate additional members who could significantly shift the tilt of the nine-member group.

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Ahead of the June meeting, Economic Policy Minister Minoru Kiuchi, who attended the gathering as the government’s representative, said he “strongly” expected the BOJ to coordinate with the government on policy.

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