Japan’s next PM keeps rate hikes on track
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Francesco Guerrera
LONDON, Sept 27 (Reuters Breakingviews) -Japan’s messy politics produced a clear outcome – at least for monetary policy. Veteran politician Shigeru Ishiba will be the country’s next prime minister after defeating eight other candidates in an internal party election. His hands-off approach to interest rate hikes will help the central bank continue its baby steps towards higher borrowing costs.
Bank of Japan Governor Kazuo Ueda must be relieved that the ruling Liberal Democratic Party, whose chief is guaranteed to run the country, didn’t choose its first female leader. Not because of sexism, but because the relevant candidate to replace the scandal-ridden administration of Fumio Kishida, Sanae Takaichi, had said it would be “stupid” to raise rates now.
To be fair, Ueda is not in a rush to lift short-term rates from the current 0.25% level. After ending a decade of negative rates in March and raising them again in July, the BOJ is pausing to analyse developments in domestic inflation and the international economy. But Takaichi, a hardline nationalist who is a fan of the stimulative policies of the late PM Shinzo Abe, would have been a big obstacle to future hikes. The 67-year-old Ishiba, on the other hand, has been more relaxed about tighter policy. That’s all the more important because a recent academic study found that the BOJ is the least independent central bank among major economies.
Unlike his counterparts in the United States and Europe, who are striving to lower inflation, Ueda needs to be sure that price growth rises towards the BOJ’s 2% target and stays there. There are some encouraging signs. The central bank’s preferred gauge of inflation, which excludes volatile fresh food and fuel costs, rose at an annual rate of 2% in August, following a 1.9% rise in July. A broader measure of price growth has been rising for four straight months.
Those trends, and a less interventionist PM, suggest the BOJ could raise rates again in December or, more likely, in January. Foreign exchange traders certainly seem to think so: they are buying the currency ahead of future hikes. One dollar was worth 143 yen after Ishiba’s victory, down from 161 yen in early July. Central bankers tend to like a certain type of prime minister – the one that stays out of the way. After Friday, Ueda appears to have his man.
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CONTEXT NEWS
Former Defence Minister Shigeru Ishiba was set on Sept. 27 to become Japan’s next prime minister after winning a closely fought contest to lead the ruling Liberal Democratic Party.
The 67-year-old prevailed over hardline nationalist Sanae Takaichi in a run-off vote. The leader of the LDP, which has ruled Japan for almost all of the post-war era, is essentially assured of becoming the next premier because of its majority in parliament.
The scramble to replace current premier Fumio Kishida was sparked in August when he announced his intention to step down over a series of scandals that plunged the LDP’s ratings to record lows.
News of Ishiba’s victory sent the yen higher. One dollar was worth 143 yen at 0820 GMT, compared to 146 yen before the announcement of the new prime minister.
Graphic: The yen has strengthened against the US dollar https://reut.rs/4eFv2Hb
Editing by George Hay and Oliver Taslic
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