The Bank of Japan should raise its benchmark rate to support the yen and curb inflation, Liberal Democratic Party lawmaker and former digital transformation minister Taro Kono has said, as political uncertainty clouds the outlook for economic policy.
¡°We need to fix the yen rate. In order to do that, the Bank of Japan needs to increase the interest rate,¡± Kono said Tuesday in an interview. ¡°If the Bank of Japan delays a rate increase, I think it would mean inflation will continue and everything we import would be higher,¡± he added.
Kono¡¯s comments come days after Prime Minister Shigeru Ishiba¡¯s decision to resign raised questions about the outlook for economic policies, with some economists citing the likelihood of a delayed BOJ hike and others expressing concern about possible fiscal stimulus.
Kono slammed the idea of shoring up voter support with cash handouts, saying it would boost the deficit.
¡°It doesn¡¯t work,¡± he said. ¡°The core of the problem is low interest rates.¡±
The yen was trading around ?147.35 to the dollar mid-morning in Tokyo Tuesday, weaker versus its five-year average around ?133.61.
The Liberal Democratic Party is preparing to hold a leadership election as early as next month to choose Ishiba¡¯s successor, who will then vie to become prime minister.
One leading contender, Sanae Takaichi, has called for continued monetary easing and expanded fiscal stimulus, raising concerns about Japan¡¯s debt sustainability and fueling pressure on superlong yields.
The central bank is widely expected to hold its settings steady when it next sets policy on Sept. 19.
Asked whether he plans to enter the LDP leadership race, Kono said he¡¯s ¡°sleeping on it.¡± He was one of nine candidates in the previous contest, finishing eighth, and came in second behind Fumio Kishida in the 2021 race.
Turning to trade, he criticized talks surrounding the recently concluded U.S.-Japan tariff agreement.
¡°This tariff issue is wrong to begin with,¡± he said, noting that even with Washington¡¯s agreement to reduce levies to 15% from the 25% implemented in April, the tariffs are still much higher compared with previous levels.
The agreement was formalized through an executive order signed by U.S. President Donald Trump earlier this month.
On the U.S.-Japan security alliance, Kono said he worries that Trump¡¯s tariffs could jeopardize the relationship at a time when the situation in East Asia is unstable economically and in terms of security.
¡°This U.S.-Japan security treaty is a public good for the region, not just for the two countries,¡± Kono said. ¡°But now the political relationship is a bit unclear and I¡¯m very worried about the situation.¡±
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