BOJ urged to maintain ultra-loose policy

The Bank of Japan (BOJ) should refrain from making significant changes to its ultra-loose monetary policy following the ruling coalition’s recent election setback, according to the leader of a key opposition party.

The political uncertainty resulting from the election outcome may delay any interest rate hikes by the BOJ until at least the end of 2024, analysts suggest.

Yuichiro Tamaki, head of the Democratic Party for the People (DPP), emphasised the importance of monitoring real wage trends in determining fiscal and monetary policies.

With real wages currently stagnant after turning negative in August, Tamaki urged caution in implementing major policy shifts. He suggested that the BOJ should wait until there is a clear indication of real wages exceeding four per cent during next year’s spring wage negotiations before considering any adjustments to monetary policy.

Tamaki’s comment highlights the challenge the BOJ faces in transitioning from ultra-loose monetary policy.

Japan’s largest labour union group aims for a five per cent wage increase in 2025, similar to this year’s raise, but economists are sceptical about its feasibility.

The BOJ is likely to keep short-term rates at 0.25 per cent at Thursday’s meeting but may indicate a willingness to raise rates if Japan reaches its two per cent inflation goal.

Most economists expect no rate hike this year, but anticipate one by March. Prime Minister Shigeru Ishiba, who took office on Oct. 1, is seen as backing the BOJ’s policy normalisation.

The ruling coalition’s loss in Sunday’s lower house elections may lead Ishiba’s Liberal Democratic Party to seek support from smaller opposition parties like the DPP to stay in power.

The DPP, which focused on increasing real wages and household income through tax cuts, saw its lower house seats quadruple. The party has also criticised the BOJ’s rate-raising efforts.

Former BOJ board member Takahide Kiuchi warned that the growing influence of opposition parties supporting easy monetary policy could delay future rate hikes by the BOJ.

Attribution: Reuters

Subediting: M. S. Salama