Sanae Takaichi, Japan’s economic security minister and a leading candidate in the ruling party leadership race, said Friday that the central bank should not raise interest rates yet as the economy is on the verge of emerging from stagnation.
“The economy is just starting to recover and is on the verge of completely eradicating the deflationary mindset, so we should not adjust fiscal policy,” Takaichi, who is emerging as a strong candidate for the leadership of the Liberal Democratic Party (LDP), said on her personal YouTube channel.
Consumer inflation may be running above the Bank of Japan’s (BOJ) 2 percent target, but an index that excludes the impact of fresh food and energy has yet to breach that level, he said.
“Japan has not yet reached a happy situation where rising inflation is accompanied by higher wages and increased consumption,” he said.
“Therefore, the government should not reduce fiscal spending. Nor should interest rates be raised,” Takaichi said, calling for the need to improve consumer confidence.
The LDP will elect a new leader on September 27, with the winner assuming the role of prime minister due to the party’s majority in parliament.
Current Prime Minister Fumio Kishida announced last month that he would step down as head of the LDP in September, ending a three-year tenure as leader of the world’s fourth-largest economy.
The BOJ abandoned negative interest rates in March and raised short-term rates to 0.25 percent in July, on the view that the economy was moving toward achieving its 2 percent inflation target sustainably.
BOJ Governor Kazuo Ueda has signaled the bank’s willingness to raise rates further if inflation remains around 2 percent in coming years, accompanied by solid wage gains, as currently projected.
Most economists polled by Reuters expect the Bank of Japan to raise rates again this year, with more than three-quarters of them betting on a December hike. None of the respondents forecast a rate increase next week.
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