Political Turmoil and the Bank of Japan's Interest Rate Decisions
By Divya Chowdhury
MUMBAI (Reuters) – Political turmoil after Japan's ruling coalition lost its majority in a snap election last weekend could lead the Bank of Japan (BOJ) to delay its next interest rate hike until January, according to former BOJ board member Takahide Kiuchi.
"If the yen depreciates further (against the dollar), the probability of a rate hike by Bank of Japan in December will increase, but otherwise I think that January of next year could be likely," Kiuchi stated in the Reuters Global Markets Forum. Kiuchi, who served on the BOJ board from 2012 to 2017, noted that if the dollar-yen rises above 155, government intervention in the currency market might pressure the BOJ to increase rates to curb yen depreciation.
Despite various interventions in 2024, the yen fell to a 38-year low of 161.96 per dollar on July 3, before reversing its trend after the BOJ's decision to raise interest rates to 0.25% on July 31.
As of Friday, the yen was down 0.4% at 152.63, following a rise the previous day due to less dovish comments from BOJ Governor Kazuo Ueda after the bank opted to keep rates unchanged.
Kiuchi emphasized that the BOJ's basic policy stance remains unchanged, predicting a terminal policy rate of around 0.75% by mid-2025.
The leader of the opposition party, Yuichiro Tamaki, whom the ruling Liberal Democratic Party (LDP) is seeking support from after losing its majority in the lower house, suggested the BOJ should wait at least six months before raising interest rates.
Kiuchi anticipates that the ruling party will need to accept the opposition's stance to maintain ultra-easy monetary policy until wage growth consistently surpasses inflation.
"Maybe BOJ is refraining from making a comment on the political situation, but I think the political situation could be very influential for the Bank of Japan monetary policy," Kiuchi remarked. "That's a large risk."
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