BOJ Rate Hike Caution

• Markets are watching to see when Bank of Japan (BOJ) Governor Kazuo Ueda will hold his first two-way meeting with the new prime minister, a symbolically important event that would signal both are communicating closely on monetary policy. The BOJ governor typically meets the prime minister days after inauguration, but such a meeting has yet to take place since Takaichi assumed office on October 21.
• In her push to revive growth, Takaichi said she would not rule out a cut to Japan's sales tax, reinforcing market expectations for her administration to prioritise steps to reflate the economy over fixing worsening public finances.
• The remarks signal a major shift from past administrations that stuck to annual fiscal targets and emphasised the need to maintain market trust in Japan's finances, even as they deployed sizable spending packages. "We'll ensure to maintain market trust in Japan's sustainable finances," Takaichi told parliament. "But unless we boost investment, the economy won't grow."
• The administration's focus on expansionary policies could complicate the BOJ's decision on how soon to resume a rate-hike cycle that has been paused due to uncertainty over the economic fallout from higher U.S. tariffs. A draft outline of Takaichi's economic package, seen by Reuters, also said it was "extremely important" for monetary policy to focus on achieving strong economic growth.
• The BOJ kept interest rates steady last month, but its board saw a growing case of raising rates in the near term. The central bank next meets for a rate review on December 18-19, around the time the administration finalises a draft budget for the next fiscal year

(Source: Reuters)