Takaichi could tolerate another BOJ rate hike by January, economic adviser says

TOKYO (Reuters) -Sanae Takaichi, who is set to become Japan’s new prime minister, will likely tolerate another 25-basis-point interest rate hike by January next year if the economy is in firm shape, said Takuji Aida, who is widely considered as among her closest advisers on economic policy.

But such a move would be on condition the Bank of Japan (BOJ) maintains relatively loose monetary policy with no further rate hikes likely until 2027, Aida, who is currently chief Japan economist at Credit Agricole, wrote in a research note on Saturday.

“The new administration will likely move steadfastly towards aggressive fiscal policy to protect people’s livelihood,” Aida said. To align with the government’s focus on reflating growth, the BOJ will be required to maintain accommodative monetary policy, he added.

“Takaichi will tolerate another 25-basis-point rate hike by January next year on condition the BOJ keeps monetary policy loose, and solid economic health and sufficient wage growth can be foreseen” despite the hit from U.S. tariffs, he said.

Aida is considered as one of Takaichi’s reflationist-minded advisers who have proposed bigger spending, backed by low BOJ interest rates, to revitalise the economy.

Japan’s ruling party picked Takaichi, seen as an advocate of expansionary fiscal and monetary policy, as its head on Saturday, putting her on course to become the country’s first female prime minister.

The Nikkei share gauge surged past the 47,000 level for the first time and the yen slid on Monday, as markets priced in the chance of big spending and reduced bets of a rate hike at the BOJ’s next policy meeting on October 29-30.

The BOJ ended a decade-long, massive stimulus last year and raised short-term interest rates to 0.5% in January on the view Japan was on the cusp of durably achieving its 2% inflation target.

Governor Kazuo Ueda has signaled the BOJ’s readiness to keep raising interest rates if economic and price developments move in line with its forecasts.

The yen swaps market on Monday indicated a 41% likelihood of a rate hike by December, down from 68% on Friday.

(Reporting by Leika KiharaEditing by Shri Navaratnam)