Key members of Prime Minister Sanae Takaichi’s government would not oppose a Bank of Japan rate hike in December. Markets and the administration have accepted Governor Kazuo Ueda’s pitch for a 0.25 percentage point increase to 0.75%, viewing it as nearly certain. However, the BOJ’s plans for communicating longer-term rate intentions remain unclear.
According to people familiar with the matter, key members of Prime Minister Sanae Takaichi’s government would not try to block the Bank of Japan if it decides to raise interest rates in December. This stance, reported on December 4, makes such a move more likely amid speculation fueled by Governor Kazuo Ueda’s remarks on Monday.
Ueda employed diplomacy, highlighting inflation risks and a weak yen to convince Takaichi, who last year labeled rate hikes “stupid.” The pitch succeeded: both markets and the new government now see a quarter-point increase to 0.75% at the December 19 policy meeting as a near certainty, easing fears of political interference in BOJ tightening.
Still, some senior officials oppose the timing, the sources added. Less clear is how the BOJ will communicate its longer-term rate path, complicated by a lack of consensus on Japan’s neutral interest rate. This development could shape the trajectory of the Japanese economy.