Down in the polls, the Japanese leader renews his unorthodox bet on inflation

(Bloomberg) – Japanese leader Fumio Kishida recently saw his approval ratings plummet with the yen. But he is sticking to his world-defying bet on loose monetary policy even as voter discontent mounts.

Support for Kishida’s year-old cabinet has fallen to less than 30%, about half of what it was six months ago, mainly due to a public outcry over his ties. ruling party with a fringe church that came to light after the murder of Shinzo Abe in July. Longest serving Prime Minister of Japan. Kishida announced an investigation into the organization this week in a bid to cover up the scandal.

At the same time, voters are increasingly unhappy with the rise in prices fueled by the yen, which weakened this month to the lowest level against the dollar since 1990. September figures due on Friday are expected to show that Japan’s key inflation indicator hits 3%, the highest in about 30 years after the elimination of fiscal distortions.

However, Kishida does not move. On Tuesday, he reiterated his support for BOJ Governor Haruhiko Kuroda’s inflation stimulus.

“Exchange rates are determined by various factors,” Kishida told parliament. “Monetary policy should be decided by the comprehensive assessment of various factors, not only the exchange rate but also the economy, inflation and its impact on small businesses.”

British Prime Minister Liz Truss has just given a hard lesson on the risks of sudden changes in direction in nervous markets. Any attempt by Kishida to criticize Bank of Japan policy or pressure the central bank to raise rates could wreak even more havoc for bonds and stocks.

“Kishida is better off patiently sticking to what he’s already doing,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management. “A reversal of course, especially on monetary policy, would send shock waves through financial markets and ruin all the positive aspects of the easing, such as the record corporate profits that are driving all wage growth. .”

As the government hands out grants, opposition parties struggle to capitalize on its woes. As has been the case for years, none of them claim support from more than one digit.

With Kishida not needing to face a national vote for three years and the opposition weak, a challenge to his leadership could still come from his ruling Liberal Democratic Party if prices continue to rise. It wouldn’t be surprising if inflation accelerated further to 5%, according to Rie Nishihara, chief Japanese equity strategist at JPMorgan Securities Japan Co Ltd.

“It would chill everyone’s finances — hit them in the wallet,” she said. “He should therefore carefully consider how much fine-tuning of interest rates would hurt households and small and medium-sized businesses.”

Kishida is expected to increase spending again with a stimulus package later this month and another supplementary budget that provides more relief to struggling households and businesses. It gives him another chance to build up his public support while showing he’s a steady hand behind the wheel.

Although inflation in Japan is well below levels in the US and UK, even a reading of 3% is likely to dismay a public whose perception has been shaped by years of falling prices and stagnant incomes.

Kishida promised to unveil a new mechanism to slow rising electricity bills on top of the already extended subsidies that maintain a cap on gasoline prices and food costs for farmers. It also plans to introduce measures that would generate wage growth in line with inflation, as real inflation-adjusted wages have fallen for five consecutive months.

“In terms of core inflation, I think there is no urgency for the BOJ to raise interest rates relative to the US and Europe,” the former said. BOJ board member Sayuri Shirai, now a professor at Keio University. “If inflation goes to 4% or 5%, maybe they will think about it.”

Kuroda has repeatedly said the bank needs to keep interest rates low to support a fragile and slow economic recovery, arguing that current inflation – largely driven by energy and food – is not sustainable without solid wage gains.

Kishida said higher interest rates would hurt individuals and small businesses burdened with mortgages and loans. He did not mention public debt, which was about 2.6 times larger than Japan’s gross domestic product in 2021, according to the finance ministry. That puts it well above Group of Seven peers like the United States with 1.33 times and Germany with 0.7 times GDP.

The Ministry of Finance says that the increase in debt is a structural problem caused by the increase in social security costs associated with the aging of the population. Debt-service charges — repayment and payment of interest rates — accounted for about 23% of the original FY2022 budget, and the lower rates will keep the cost of a spending habit Japan seems unable to sustain. to get rid of.

“That’s the biggest problem with ultra-low interest rates,” said economist Yuichi Kodama of the Meiji Yasuda Research Institute. “They’ve made it very easy for the government to keep expanding its tax tap, and it’s reached a point of paralysis.”

–With the help of Toru Fujioka.

©2022 Bloomberg LP

Previous MBC Bags Turkey Deals & 'Doctor Foster' Remake - Mipcom Briefs - Deadline
Next The Rise of J-Culture and Anime in Today's Movie and Entertainment Industry