(Bloomberg) -- The Bank of Japan shouldn’t raise interest rates again before March next year, according to Yuichiro Tamaki, a key potential ally for Japan’s weakened government.
The central bank needs to closely examine the results of next year’s wage deal results before moving on policy again, Tamaki told Bloomberg in an interview Friday.
“Until we achieve nominal wage growth 2% above inflation, we should continue with monetary easing and proactive fiscal spending,” Tamaki said. “We are still in a very important phase, trying to get out of the 30 years of deflation, so we want to make that our top priority first. We will avoid any increase in the burden on people.”
The initial results of annual wage negotiations usually come out in early March. The outcome this year was a major factor behind the BOJ’s historic move to end its negative rate and scrap its stimulus program. Tamaki said particular attention should be paid to wage deals at smaller firms.
The DPP leader added that the BOJ shouldn’t compile policy with the intention of affecting foreign exchange rates. The bank’s decision to raise rates in July has been criticized by some observers as a response to renewed weakness in the yen.
Tamaki’s party is in the middle of policy negotiation with the ruling coalition, which suffered a crushing loss in Sunday’s election, leaving Prime Minister Shigeru Ishiba looking for allies to shore up his government.
So far Ishiba hasn’t formalized a deal with any of the opposition parties to join the ruling coalition. To win a vote for the premiership likely on Nov. 11 he will need most parties to back their own leaders in each voting round, as they have stated they will, rather than coordinate votes to oust him.
Still, the premier needs support from outside the Liberal Democratic Party and Komeito ruling coalition to get a promised extra budget through the lower house among other initiatives. Failure to show his government can move forward with policy would quickly endanger his position.
While the DPP chief has repeatedly said he won’t join a coalition with Ishiba’s party, he has said he’s willing to cooperate if they can agree on policies.
Tamaki’s top priority is to raise the ceiling on tax-free incomes so that part-time workers can earn more. The DPP plan is to push up the ceiling from ¥1.03 million ($6,700) to ¥1.78 million to encourage part-timers to take on more work, which by extension will stimulate spending and activity in the economy.
The finance ministry says the measure will cost ¥7 trillion to ¥8 trillion in lost tax revenue, an amount equivalent to more than 10% of annual tax receipts.
Tamaki estimates the cost will be much lower, around ¥4 trillion to ¥5 trillion, most of which he says would be offset by a revenue boost via higher consumption prompted by the change. The measure, along with proposed cuts to a gasoline tax and social security contributions, should be enacted permanently and dealt within in the regular budget for next year, Tamaki said. That means negotiations should be done by the end of December, he said.
The extra budget to fund an upcoming economic stimulus package promised by Ishiba will need at least ¥3 trillion to ¥5 trillion for disaster relief efforts for the Noto region, Tamaki added. He didn’t specify the overall size of the extra budget, but said he was skeptical if the size needed to be over last year’s ¥13 trillion as promised by Ishiba.
The DPP won 28 seats in the lower house in Sunday’s national election. Those seats are now pivotal in the national balance of power after the LDP and its coalition partner won only 215 seats, below the 233 needed for a majority and a stable government. The DPP’s policy stance is most closely aligned to the LDP of all the opposition parties.
Tamaki said that while cooperation this time will mean the DPP will support the passage of budget items, that won’t mean he will necessarily support Ishiba on other issues even if that delivers a defeat to the administration.
Asked how he would respond to a no confidence vote against the administration he said: “I can’t say yes or no at this point.”
“This won’t be a full coalition at all. It will be on a case-by-case basis and on an issue-by-issue basis,” Tamaki said.
His party will vote against higher taxes for defense spending, which was advocated by Ishiba’s predecessor Fumio Kishida, Tamaki said.
“We should not be talking about asking the public to bear any kind of extra burden at the moment,” said Tamaki, a former Finance Ministry official. “If wages rise steadily, then we won’t oppose various measures to rebuild government finances or to normalize monetary easing.”
--With assistance from Yuki Hagiwara and Alastair Gale.
(Adds more comments from interview)
©2024 Bloomberg L.P.