Japan is reviewing the low-interest-rate policies it pursued for many years to combat deflation, while a shift from monetary easing to monetary tightening is being debated against a backdrop of rising inflation and yen depreciation. Expectations of a Bank of Japan rate hike are also said to be growing.
Japan pursued an anti-deflation strategy through low-interest-rate policies for more than a decade, but the continuing rise in prices and accelerating yen depreciation have recently intensified debate over whether current policy remains appropriate. Prime Minister Takaichi (高市), who supports Abenomics, the economic strategy of former Prime Minister Abe, has indicated that the Bank of Japan should be urged strongly to tighten monetary policy, while the current administration has also faced criticism for continuing its fiscal expansion.
The Bank of Japan is expected to raise its policy rate from 1.0% to 1.25% at its monetary policy meeting on 19 September, with reports indicating that it will continue the 0.25-percentage-point rate-hike cycle it has pursued roughly every six months. Governor Hamada (浜田) has said that the Bank of Japan needs to respond more quickly, and calls for an acceleration of monetary tightening are growing.
The yen has fallen against the US dollar to levels not seen in several decades, at times forcing the government and the US Treasury to intervene in the foreign-exchange market. Against this backdrop, views remain divided between those arguing for the continuation of Abenomics and those who believe priority should be given to monetary tightening.
Former Treasury Secretary Bessent recently urged Japan to raise interest rates and curb fiscal spending, and the views of investors said to have benefited from Abenomics are also changing. Some figures involved in Abenomics, including Hamada (浜田), are now opposing the continuation of current policy and calling for an end to reflationary policies.