Can Takaichi (高市)'s “high-pressure policy” raise potential growth and derail the BOJ's “rate-hike scenario” amid concerns over accelerating inflation?

In her policy speech to the extraordinary session of the Diet, Prime Minister Takaichi (高市) stated that she aimed to implement “responsible proactive fiscal policy” by attracting domestic investment and raising Japan's potential growth rate. The policy is intended to create a virtuous cycle of GDP growth through naturally rising tax revenue, an expansion of quality employment and income, and improved consumer sentiment.

Against a backdrop of rising long-term interest rates, this policy has been viewed as taking on the character of a high-pressure economic policy, alongside an explanation that it is not a reflationary policy. Emphasis was placed on strengthening supply capacity and expanding the economy through public- and private-sector “crisis management and growth investment.”

Although higher labor productivity is considered essential to raising the potential growth rate, it may take time for this direction to lead to an actual increase in supply capacity, raising concerns about the side effect of higher inflation.

If accelerating inflation continues, the underlying inflation rate could move toward reaching the 2% target, potentially affecting the BOJ's rate-hike scenario. The establishment of the policy rate and its eventual convergence toward the neutral rate are emerging as challenges for future developments.

Articles examining the deliberations of the BOJ and the FRB, as well as the substance of Sanaenomics (Takaichi's economic policy), have also been featured. Assessments of the policy may change depending on subsequent reports.