(Bloomberg) -- Japan’s new Prime Minister Shigeru Ishiba doesn’t unconditionally support the raising of interest rates, one of his closest allies said, underscoring the view that the new cabinet is unlikely to want the Bank of Japan to rush into further rate hikes.
“It’s not necessarily accurate to say Prime Minister Ishiba is pro-rate hikes,” Ryosei Akazawa, the minister for economic revitalization in Ishiba’s new cabinet, told reporters in Tokyo on Wednesday. “There are various conditions that need to be met for a hike. The top priority is overcoming deflation.”
The remarks from Akazawa, known for his close ties to Ishiba, suggest the government is signaling to BOJ Governor Kazuo Ueda that it’s against raising borrowing costs again too soon. The comment will likely further cement the market view that there’s little chance of a hike at the end of this month when the BOJ policy board convenes.
In his newly appointed position, Akazawa will be able to attend the BOJ’s policy meetings. His predecessor did so a few times, though he was far less vocal on monetary policy.
Even with the central bank’s key inflation gauge extending its run at or above its 2% price target for more than two years, the government hasn’t declared an end to deflation, citing risks that the country could still fall back into a state of falling prices.
While Akazawa urged the BOJ to exercise caution over rate hikes for now, he also said that normalizing policy is broadly the right direction.
“Looking at it from a global perspective, the BOJ no longer has negative rates but the 0.25% level isn’t normal,” the minister said. “If conditions allow, normalization should happen.”
Ueda has said that judging the end of deflation is up to the government and the BOJ will continue to conduct policy with an aim to achieve its stable inflation goal. The bank ended its massive monetary easing program in March, and hiked the policy rate to 0.25% in July.
Akazawa also said that the BOJ and the government’s 2013 joint statement is old but still playing an important role. He expressed hope that Ishiba and Ueda will meet soon to share their perspectives, including the direction of prioritizing the defeat of deflation.
It’s unclear if Ishiba’s cabinet will result in the central bank waiting longer before hiking again compared to what BOJ watchers have been expecting. Most economists surveyed last month before the ruling party leadership election saw another increase by January.
The BOJ policy board indicated the need for caution over the economy’s outlook in a summary of opinions from the September policy meeting released earlier this week. That leaves scope for the bank to say they are on the same page as the government.
Ishiba said he wants to order the compilation of an economic package soon to help those struggling with inflation. Economists say that it’s easier for the government to explain why they need additional fiscal spending by citing deflationary risks.
--With assistance from Akemi Terukina.
(Updates with more comments from Akazawa.)
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