Sanae Takaichi’s expected victory as Japan’s next prime minister is seen delaying, but not halting, the Bank of Japan’s path toward higher interest rates. Analysts say her reflationary stance and support for large-scale fiscal stimulus make an October rate hike unlikely, though the central bank may resume tightening early next year if the yen weakens sharply.
Reuters post up reasons that Takaichi is no Abe.
Takaichi, a conservative nationalist and close ally of the late Shinzo Abe, has long championed the pro-growth “Abenomics” playbook of aggressive spending and ultra-loose monetary policy. Upon winning the ruling party leadership, she pledged to prioritise demand-driven inflation, arguing that Japan has not yet overcome deflationary pressures, especially as Trump-era tariffs weigh on exporters.
Markets had priced in a 60% chance of an October rate hike before her win. Economists now expect Governor Kazuo Ueda to adopt a more cautious approach amid global uncertainties. However, delaying tightening too long risks triggering another sharp yen slide — potentially beyond ¥150 per dollar — that could worsen imported inflation.
While Takaichi’s win could strain BOJ independence in the near term, analysts agree she is unlikely to fully reverse the tightening cycle, as inflation remains above target and Japan’s policy focus shifts from deflation to managing price stability.
---
The news and views so far ICYMI:
- Sanae Takaichi wins runoff vote in LDP leadership race
- Japan's Takaichi says to carefully consider if current govt-BOJ accord is most appropriate
- USD/JPY gap higher open on the back of Japanese politics, circa 149.35
- Japan - the yen has gapped lower, while the Nikkei has a huge gap higher
I posted earlier to watch for a gap fill for the yen. I should add similar for Nikkei since that (well, futures) has now opened.
The Reuters piece I summarised above will be just one of many watering down the financial market excitement/gap excitement over Takaichi's win.
