Today, Sanae Takaichi was elected as the President of the Liberal Democratic Party. Had Ms. Takaichi been chosen four years ago instead of Mr. Kishida, there is a high probability that the economy would have moved in a proper direction much sooner. In this blog, I have consistently rejected and scathingly criticized everything Mr. Kishida did, but in short, his tenure was disastrous.
One of my primary criticisms was his “complete failure to conduct an economic assessment while abdicating all responsibility for monetary policy to the Bank of Japan (BOJ).” While the public struggled with poverty, the 2% inflation target took on a life of its own. Detached from the real economy, the BOJ continued to raise interest rates as if to say, “As long as we defend the 2% target, we’ve done our job, right?”
In contrast, during the September 2024 leadership race, Ms. Takaichi stated, “I think it’s foolish to raise interest rates now.” I believe her assessment aligns with my own. It is common sense that interest rates should be raised gradually only after real wages have increased and private consumption has expanded. She noted, “The government bears the responsibility for determining the direction of monetary policy,” while adding, “As I stated last year as a premise, the BOJ should decide the specific means.” This is a perfect score—100 points. While it is not yet certain she will become Prime Minister, if she does, I hope she engages in thorough dialogue with the BOJ.
That being said, what are we to make of the words and actions of the three BOJ Policy Board members: Asahi Noguchi, Naoki Tamura, and Hajime Takata?
Mr. Noguchi was once a leading advocate for quantitative easing (QE), fiercely attacking those with opposing views. I had no problem with that; in fact, thanks to him, the debate over monetary policy was revitalized. However, he has now turned hawkish, stating, “It is necessary to consider not only downward risks but also upward risks,” and showing support for rate hikes. Monetary policy is a crucial tool for supporting fiscal policy. Raising rates while real wages are declining and the public continues to suffer is not justifiable. While major figures of the reflationary school, such as Koichi Hamada and Hidetomi Tanaka, began to incorporate the arguments of the fiscal expansionists after realizing the limits of monetary policy (a logical conclusion, in my view), I wonder what Mr. Noguchi is thinking. I would like to hear a more thorough explanation.
As for the other two, they represent the financial industry. In the September Monetary Policy Meeting, they called for a rate hike and opposed maintaining the current policy rate. Simply put, they likely believe the industry will profit if rates rise. However, this is an incredibly shortsighted view. A rate hike at this stage will, in the long run, hinder the development of small and medium-sized enterprises (SMEs), and consequently, stifle the growth of the financial industry itself.
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