Japan's minister urges central bank to keep interest rates low amid economic recovery

Sept. 14, 2024, 8:55 a.m.

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Sanae Takaichi, Japan’s minister in charge of economic security and a leading candidate in the ruling party’s leadership race, said on Saturday the central bank should maintain ultra-low interest rates to support the fragile economic recovery.

“Frankly, it was too early,” she told a news conference gathering the nine candidates running in the race, when asked about the Bank of Japan’s (BOJ) interest rate hikes this year.

“Interest rates ought to be kept low,” said Takaichi, who is emerging as a strong candidate for the leadership of the Liberal Democratic Party (LDP).

Advertisement Takaichi’s remarks follow those she made on her personal YouTube channel on Friday stressing the need to maintain fiscal and monetary support for the economy.

The BOJ abandoned negative interest rates in March and lifted short-term rates to 0.25% in July based on the assessment that the economy was making progress toward achieving its 2% inflation target sustainably.

BOJ Governor Kazuo Ueda has signalled the bank’s readiness to raise rates further if inflation stays around 2% in coming years accompanied by solid wage gains, as it currently projects.

The LDP will choose a new leader on Sept 27, with the winner due to take over as prime minister due to the party’s majority in parliament.

Incumbent Prime Minister Fumio Kishida announced last month that he would step down as LDP chief in September, effectively ending a three-year term as leader of the world’s fourth-largest economy.

A majority of economists surveyed by Reuters anticipate the BOJ will raise rates again this year, with over three-quarters of them predicting a hike in December. None of the respondents projected a rate increase next week.

The majority of the LDP candidates have advocated for a spending package to mitigate the impact of rising living costs, without specifying the source of funding for this additional expenditure.

Advertisement An outlier was Taro Kono, minister in charge of digitalisation, who said boosting expenditure or maintaining generous subsidies won’t necessarily prop up economic growth.

Kono emphasized on Saturday the need for Japan to engage in discussions about enhancing its fiscal health, as the rising interest rates will increase the cost of financing its substantial public debt.

Toshimitsu Motegi, another candidate and ruling party official, proposed that the government could finance various expenditures by utilizing the substantial reserves allocated for currency intervention.

Motegi stated that while the majority of Japan's reserves are currently invested in U.S. government bonds, the country could explore diversifying its investment portfolio to potentially achieve higher returns.

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