Bank of Japan holds rates in first meeting after Takaichi’s ascent to prime minister
The Japanese national flag is seen at the headquarters of the Bank of Japan (BoJ) in Tokyo on July 31, 2024. The Bank of Japan raised its key interest rate for the second time in 17 years on July 31, taking another step away from its massive quantitative easing program.
Kazuhiro Nogi | Afp | Getty Images
Japan’s central bank on Thursday kept benchmark interest rates steady at 0.5% in its first meeting since Sanae Takaichi took office as the country’s prime minister earlier this month.
The decision was in line with expectations of economists polled by Reuters and comes as inflation has remained above the central bank’s 2% target for 41 consecutive months.
U.S. Treasury Secretary Scott Bessent met with the Takaichi administration’s new finance minister, Satsuki Katayama, on Monday and appeared to be targeting her. Tokyo due to yen weaknesshe even comments on the country’s monetary policy.
The U.S. Treasury Department said in a statement Tuesday that Bessent “emphasized the important role of sound monetary policy formulation and communication in stabilizing inflation expectations and preventing excessive exchange rate volatility.”
Higher interest rates tend to strengthen a currency by inviting foreign inflows, while lower interest rates tend to weaken it.
The weak yen has been a sticking point for US President Donald Trump, who said in March that Tokyo was weakening its currency to gain an unfair trade advantage.
Trump met with Takaichi, who has advocated lowering interest rates in the past and called the BOJ’s rate hikes “stupid.”
Although Takaichi appears to have softened his stance, this move to strengthen the yen still conflicts with his plans for massive fiscal spending and loose monetary policy.
“The most important thing is that the BOJ and the government coordinate policy and communicate closely,” Takaichi said on Oct. 21, according to Reuters.
Takaichi is seen as a proponent of “Abenomics,” the late Shinzo Abe’s economic strategy that embraces loose monetary policy, fiscal spending and structural reforms..
on wednesday, Bessent wrote about X “The government’s willingness to cede policy space to the Bank of Japan will be key in stabilizing inflation expectations.”
Katayama said in March: real value of yen It was probably around 120-130 against the dollar; It was about 26% stronger than the current level of 152.
According to experts, Takaichi’s policies will most likely devalue the yen; This had already happened in the so-called “Takaichi trade”. Nikkei 225 It reached record highs and the yen weakened beyond the 150 level against the dollar.
The BOJ’s decision also came amid a relatively weak export environment. Japan’s exports contracted for four consecutive months before seeing a rebound in September, but shipments to the United States are still declining.
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