Wed Sep 18 02:13:46 UTC 2024: ## Japan’s Leadership Race Could Complicate BoJ’s Interest Rate Hike Plans

**TOKYO** – The upcoming leadership race for Japan’s ruling Liberal Democratic Party (LDP), set for September 27th, is causing uncertainty for the Bank of Japan’s (BoJ) plans to normalize its ultra-loose monetary policy. While most candidates, including frontrunners Shigeru Ishiba and Shinjiro Koizumi, seem to support a gradual increase in interest rates, one candidate, Sanae Takaichi, stands out as a vocal opponent of policy normalization.

Takaichi, a potential frontrunner, has stated that the BoJ hiked rates prematurely and believes keeping borrowing costs low is crucial to avoid impacting consumer sentiment. If she were to become Prime Minister or take on key roles like Finance Minister, her stance could lead the BoJ to delay interest rate hikes. This could result in lower bond yields and a weaker yen, going against the BoJ’s efforts to steer markets towards a less loose monetary environment.

However, Takaichi’s potential victory could also lead to higher bond yields in the long run if she pushes for large spending packages, potentially causing an increase in debt issuance. Both Takaichi and Koizumi have promised emergency payouts to certain sectors, but have yet to elaborate on the details of funding or the scale of these measures. Ishiba, known for his fiscal conservatism, has emphasized the need to address Japan’s fiscal issues.

The winner of the LDP leadership race will likely call a snap election as early as October 27th, further complicating the timing of the BoJ’s interest rate decisions. To avoid drawing unwanted political attention, the BoJ may prefer to hold off on rate hikes until at least December, potentially delaying the next increase until their policy review in October or their meeting in December.

Despite the uncertainty, most economists surveyed by Reuters still expect the BoJ to raise rates again this year following their surprise hike in July, with most betting on a hike during the December 18-19 meeting. The outcome of the LDP leadership race and its implications for the BoJ’s policy decisions remain key factors for market watchers to closely monitor.

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