LDP Candidate Softens Stance on Monetary Policy, Emphasizes BOJ Independence

A leading contender for the leadership of Japan's Liberal Democratic Party (LDP) has softened their stance on monetary policy, stating that the specifics of such policy should be determined by the Bank of Japan (BOJ). This change in position comes nearly a year after the candidate had previously advocated for a more dovish approach to economic management.

During a recent debate with other candidates, the contender clarified that while the government is responsible for setting the overall direction of fiscal and monetary policy, the implementation of monetary policy should be left to the BOJ. This statement marks a departure from their previous views, where they had suggested that the government should play a more active role in shaping economic strategies.

Previously, the candidate had expressed that raising interest rates would be "foolish," which led to speculation that if elected, they might slow down the normalization of the BOJ's policy. Although they did not win the previous election, they are now considered a strong contender in the upcoming race, which could potentially determine the next prime minister of Japan.

The candidate's remarks come at a time when there is speculation about the BOJ potentially raising interest rates as early as October 30. Two board members had dissented from the BOJ's decision to hold rates steady last week, fueling market expectations of an imminent rate hike. The candidate has expressed caution regarding the potential pace of rate increases, noting that a significant rise in interest rates could make it difficult for businesses to invest in new technologies due to higher borrowing costs.

The LDP is scheduled to vote for its next leader on October 4. However, the outcome of the election is uncertain, as the party has lost its majority in both the upper and lower houses of the Diet. This means that the winner of the LDP leadership race may not necessarily become the next prime minister, as they would still need to secure support in the Diet.

The candidate's shift in stance on monetary policy is likely to influence the debate within the LDP, as other contenders may also adjust their positions to align with the growing consensus on the importance of central bank independence. This acknowledgment of the BOJ's role in determining monetary policy is seen as a positive step towards ensuring that economic decisions are made based on expert analysis and data-driven strategies, which is crucial for navigating Japan's economic challenges.