Yoshimasa Hayashi, Chief Spokesperson of the Japanese government and candidate for Prime Minister, stated that the Bank of Japan’s plan to gradually increase interest rates is broadly in line with the government’s considerations regarding economic policy.
According to the Smart Finance APP, Yoshimasa Hayashi, Japan’s Chief Cabinet Secretary and a candidate for Prime Minister, stated that the Bank of Japan’s plan to gradually raise interest rates broadly aligns with the government’s considerations regarding economic policy. When asked whether he was concerned that the Federal Reserve’s interest rate cuts could harm Japan’s export-dependent economy by pushing up the yen against the dollar, Hayashi noted that policymakers in Tokyo no longer hold such assumptions.
In an interview on Sunday, he said that Japan’s long-standing resistance to a strong yen (a sentiment primarily prevalent among export-oriented companies, sometimes prompting government intervention) has weakened. He remarked: “On the contrary, we have seen the yen depreciate, coupled with rising oil prices following the Russia-Ukraine war, leading to cost-push inflation rather than demand-driven inflation.”
Hayashi noted that although the significant rise in import costs at the onset of the Russia-Ukraine conflict in 2022 has eased, domestic wage levels and rice prices continue to rise.
These remarks highlight the growing concern among policymakers about the yen’s weakness and the resulting price increases, which are now considered the most pressing challenges facing Japan — a stark contrast to the prevailing view in recent years that a strong yen and deflation were the biggest impediments to economic growth.
With inflation having exceeded the 2% target for three consecutive years, Bank of Japan Governor Kazuo Ueda has indicated the bank’s determination to gradually raise interest rates — currently still at 0.5% — until they reach a neutral level for the economy.
Hayashi stated: “My understanding is that the monetary policy implemented by the Bank of Japan, while maintaining close communication with the government, does not deviate significantly from our expectations.”
His comments came after the Bank of Japan decided on Friday to begin selling off its high-risk assets and faced a split vote on maintaining its low-interest-rate policy, leaving market expectations for a short-term rate hike intact.
Following Prime Minister Shigeru Ishiba’s decision to resign earlier this month, Hayashi became one of the candidates running for leadership of the ruling party. The election will be held on October 4. The next leader of the Liberal Democratic Party (LDP) is likely to become Prime Minister, as the party holds the majority in the lower house of parliament. However, this outcome is not guaranteed, as the LDP lost its majority in both the upper and lower houses during Ishiba’s tenure.
The power struggle within the Liberal Democratic Party (LDP) has drawn significant market attention and driven up government bond yields, as it is believed that the new leader may increase fiscal spending.
If elected as prime minister, Yasuhiro Hayashi stated that his administration would introduce a series of measures to mitigate economic impacts caused by rising living costs while increasing investments in disaster relief. However, he emphasized that spending levels must take into account Japan’s ‘relatively small’ output gap, and no debt should be issued to cover deficits, thus ruling out the need for large-scale stimulus.
This statement stands in stark contrast to the remarks made by another contender, Sanae Takachi, who promised during her campaign to implement fiscal expansion policies as part of her plan to stimulate economic recovery.
In a public opinion poll conducted by Japanese media over the weekend, respondents were asked who they thought was most suitable to serve as the LDP president. The results showed that Yasuhiro Hayashi ranked third with 11% support, while Shinjiro Koizumi garnered 40% and Sanae Takachi received 22%, placing them at the top.
AloJapan.com