- Government, BOJ need to be aligned on economic policy
- Will closely coordinate with the BOJ on that
- It is too early to be relieved about Japan’s economy
- Government needs to bear responsibility in both fiscal and monetary policy
- Never denied the importance of fiscal prudence
- Need swift support for weak small to medium-sized companies in order to bolster wage growth
- One policy option is to increase subsidies to local governments
- Will not rule out lowering consumption tax
As mentioned before, Takaichi is a firm believer of marking a return of “Abenomics” and that means she will have a more expansionary agenda in mind. In short, that means possibly locking heads with the BOJ on wanting to hike rates while also increasing spending – which will be a net negative for Japanese bonds.
The likely reaction that we might get tomorrow at the open might be a weaker yen and maybe some steepening of Japan’s yield curve. The JGB market reaction might be more mixed in having to balance out the outlook on the BOJ as well as her fiscal pursuit. I wouldn’t expect too strong a reaction and this is all likely one that should be faded through the day/week.
Circling back to the BOJ, this will almost certainly put off any chance of a rate hike in October. And one in December is also likely to be called off. That at least until the political dust clears and Takaichi settles down, especially in terms of managing her strategy in dealing with the US on trade.
On that front, she’s a hardliner and nationalist so we’ll have to see how she wants to balance out any approach in dealing with Trump and his tariffs. But amid the fractured nature of the LDP party, she might have to focus more on domestic issues rather than rocking the boat on international affairs for now.
