As statements opposing reflation continue under the Takaichi administration, a focus on fiscal policy has been noted, and the yen is said to be weakening.
Statements opposing reflationary policy have followed one another under the Takaichi administration, and its stance of actively promoting fiscal policy has become a subject of discussion. Views have been expressed that this is affecting the value of the yen.
The distinguishing feature of the current yen weakness is that it is progressing at the same time as long-term interest rates are rising, creating a situation that cannot be explained solely by movements in the Japan-US interest-rate differential. Funds are said to be moving away from Japan's currency and government bonds.
This phenomenon is called a debasement trade and is viewed as potentially causing simultaneous declines in the currency, bonds and equities. While the Nikkei 225 has remained firm, Japan's equity market has seen the TOPIX move little overall.
The notion of fiscal dominance, in which the central bank is subordinated to support the government's fiscal deficit, has been raised, along with concerns that higher interest rates would reduce the independence of the BOJ's monetary policy. The risks of further yen weakness and inflation are ultimately highlighted.