Incoming Japanese PM calls for end to deflation

TOKYO – Japan’s incoming prime minister Shigeru Ishiba on Friday stressed the need for the country’s economy to fully emerge from deflation.
Revitalising consumption is key for Japan to emerge from economic stagnation, he said, adding the new administration must consider the most effective means to cushion the blow to households from rising inflation.
Ishiba made the comment in a news conference after winning the leadership race of the ruling Liberal Democratic Party, which de-facto makes him next prime minister given the party’s dominance in parliament.
He will be sworn in as the country’s 102nd prime minister on Tuesday, Oct 1, the same day that Fumio Kishida officially steps down. A new cabinet will be announced the same day.
“I will ensure Japan emerges from deflation,” he said, promising to accelerate Kishida’s policies aimed at boosting household income through wage hikes.
The yen bounced on Friday, recovering earlier losses, after Ishiba, a former defence minister seen as a critic of past aggressive monetary stimulus, won the leadership contest.
Ishiba defeated Sanae Takaichi, a vocal proponent of deceased former premier Shinzo Abe’s “Abenomics” stimulus policies, in the final run-off.
While Ishiba did not comment on monetary policy at Friday’s news conference, analysts saw his win as removing one road-block for the Bank of Japan in raising interest rates further.
“Ishiba’s win would give the BoJ a freer hand as Ishiba, who doesn’t appear to have a very strong view on monetary policy, will likely respect the central bank’s decisions,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.
“With today’s result, the influence of Abenomics will essentially disappear,” Maeda said, predicting the next interest rate hike would come as early as December.
Takeshi Minami, chief economist at Norinchukin Research Institute, also said the victory of Ishiba would make it easier for the BOJ to normalise monetary policy.
“In terms of economic policy, Japan is bidding farewell to Abenomics,” he said.
Ishiba is likely to announce a plan to compile a fresh stimulus package focusing on steps to curb food and fuel prices, which will be funded by a supplementary budget.
Under Governor Kazuo Ueda, who was appointed by Kishida, the BoJ exited negative rates in March and raised short-term borrowing costs to 0.25% in a landmark shift away from prolonged, radical monetary stimulus.
Ueda has said the BoJ will keep raising rates if inflation remains on track to stably hit 2% as it projects, though he stressed the bank will spend time gauging how global economic uncertainties affect Japan’s fragile recovery.