Japanese Prime Minister Takaichi Urges BOJ to Avoid Raising Interest Rates By Reuters

By Leica Kihara

TOKYO (Reuters) – Sanae Takaichi, Japan’s economic security minister and a leading contender in the ruling party leadership race, said on Friday the central bank should not raise interest rates yet as the economy is on the verge of exiting the stagnation.

“The economy is just starting to recover and is on the verge of fully eradicating the deflationary mentality, so we should not tighten fiscal policy,” Takaichi, who is emerging as a strong contender for the leadership of the Liberal Democratic Party (LDP). she said on her personal YouTube channel.

Consumer inflation may exceed the Bank of Japan’s (BOJ) 2 percent target, but an index that excludes the effect of fresh food and energy has yet to surpass that level, she said.

“Japan has not yet reached a happy situation where rising inflation is accompanied by higher wages and stronger consumption,” she said.

“As such, the government should not cut fiscal spending. Interest rates should not rise either,” Takaichi said, urging the need to boost consumer sentiment.

The PDL will elect a new leader on September 27, with the winner set to take over as prime minister thanks to the party’s majority in parliament.

Incumbent Prime Minister Fumio Kishida announced last month that he would step down as head of the LDP in September, effectively ending a three-year term 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% in July, believing the economy was making progress towards a sustainable 2% inflation target.

BOJ Governor Kazuo Ueda has signaled the bank’s willingness to raise rates further if inflation stays around 2 percent in the coming years, accompanied by solid wage gains, as currently expected.

Most economists polled by Reuters expect the BOJ to raise interest rates again this year, with more than three-quarters betting on a December hike. None in the survey projected a rate hike next week.