While the Takaichi administration has announced a move away from reflationary policy, financial markets have not accepted its intentions at face value. The formulation of the fiscal 2027 budget and the BOJ's response are attracting attention as the focus going forward.
As the Takaichi Sanae administration (高市早苗政権) emphasizes a departure from monetary easing and active fiscal policy, the market has not accepted the government's claims at face value. Against the backdrop of US concerns, the question is whether a policy shift will proceed.
Debate over fiscal stimulus is focusing on the formulation of the fiscal 2027 budget, the amount of new government bond issuance and the appropriate size of the budget. The response to the BOJ's monetary policy has also emerged as a focus going forward. Market participants said they want to assess the consistency between the government's communications and its actual actions.
While the market is concerned about US pressure and the impact on foreign exchange rates and interest rates, some view the administration as gauging domestic and international reactions by maintaining its stance of moving away from reflation. Experts say assessments of its fiscal policy stance are divided, and point out that the content of spending will be key to gaining market acceptance.
The BOJ's price trends and policy management are also at an important juncture. Even if the inflation rate reaches its target, the BOJ may continue to take a cautious stance on the timing and scale of rate hikes, and attention will focus on whether it can make decisions without prejudging the outcome even after gaining the government's understanding.