Japan LDP Lawmakers Oppose BOJ Rate Hike Amid Political Concerns

A small sampling of lawmakers from Japan's ruling Liberal Democratic Party (LDP) indicates there is political opposition to a Bank of Japan (BOJ) interest rate hike in the coming months. All 10 LDP officials surveyed said it is too early for the BOJ to raise rates following the March 19 decision to end the zero interest rate policy, and that the conditions for a second step in the coming months will not be good as the country approaches major political decisions, including an LDP leadership election in September.

Upper House MP Shoji Nishida called the possibility of further rate hikes in July or September "impossible," saying smaller companies do not have the financial resources to absorb higher borrowing costs. Approval ratings for Prime Minister Fumio Kishida's cabinet have failed to break the perceived danger zone below 30%, and the LDP faces challenges in an upcoming by-election.

Politics could complicate matters for a BOJ rate hike later this year, with the September meeting too close to the LDP leadership vote and the possibility of parliament being dissolved before an October hike. This is a change from last month, when the BOJ faced no apparent opposition in advance of its decision to increase interest rates for the first time since 2007.

Why this matters: The political considerations surrounding potential BOJ rate hikes have broader implications for Japan's economic policy and the yen's trajectory. The opposition from LDP lawmakers highlights the delicate balance between monetary policy decisions and political realities in Japan.

The BOJ is expected to keep interest rates unchanged in its upcoming statement on Friday, and BOJ Governor Ueda is expected to speak soon after. In September 2022, Japan intervened to prop up the yen after it plunged on former BOJ Governor Kuroda's remarks about maintaining ultra-loose policy. Ueda may try to sound more hawkish than usual to prevent similar market reactions.

Investors are keenly awaiting the outcome of the BOJ's policy meeting on Friday for cues on when the central bank will raise interest rates again, which will determine the near-term trajectory for the yen. However, the political opposition from LDP lawmakers suggests that any further rate hikes in the coming months may face significant hurdles, especially as Japan approaches crucial political events like the LDP leadership election in September.

Key Takeaways

• LDP lawmakers oppose BOJ rate hike due to political concerns
• Kishida's cabinet approval ratings below 30%, LDP faces by-election challenges
• Political factors may complicate BOJ's rate hike plans in 2023
• BOJ expected to keep rates unchanged, new governor may sound hawkish
• Further BOJ rate hikes face hurdles as Japan approaches key political events