Senior Senator Taro Kono: Japan must "quickly" raise interest rates and rectify its finances to reverse the decline of the yen
Japanese senior politician Taro Kono stated that Japan needs to raise interest rates and reorganize its finances as soon as possible to reverse the weakness of the yen. The current depreciation of the yen is driving up inflation, putting pressure on household living. He believes that the central bank should gradually raise interest rates to signal that Japan will move away from negative real interest rates. Although inflation has been above 2% for three consecutive years, the central bank governor emphasized the need to proceed with caution. Kono pointed out that the weakness of the yen has become the root cause of inflation, and the government and the central bank need to reach a new economic framework to restore fiscal health
According to the Zhitong Finance APP, Taro Kono, a senior ruling party lawmaker in Japan, stated on Tuesday that Japan must raise interest rates and restore fiscal order to reverse the weak yen trend. The current depreciation of the yen has driven up inflation, putting pressure on household living.
The Bank of Japan (BOJ) ended its decade-long large-scale stimulus program last year and raised the short-term interest rate to 0.5% in January this year, based on the judgment that Japan is close to achieving a stable 2% inflation target.
Kono, who has served as foreign minister and is seen as one of the candidates for future prime minister, pointed out that it is not ideal for the real borrowing costs, adjusted for inflation, to remain in negative territory for a long time.
When asked when the central bank should restart interest rate hikes, he responded in an interview, "I think it is better to do it sooner rather than later." He emphasized that "it is crucial to convey to the market that Japan will get rid of negative real interest rates" and clearly stated that the Bank of Japan needs to continue to gradually raise interest rates.
Regarding market expectations that the Bank of Japan will raise interest rates again before the end of the year, Kono said, "I will not comment on specific measures, but I feel that (the rate hike) has come too late."
Although consumer inflation has been above 2% for more than three consecutive years, BOJ Governor Kazuo Ueda emphasized that further rate hikes must be approached with caution due to the potential impact of U.S. tariffs on the economy.
Critics argue that the slow pace of interest rate hikes by the Bank of Japan has led to a weak yen, which in turn has increased import costs. Kono pointed out that the weak yen was once seen as beneficial for Japan's export-oriented economy, but now it has become the root cause of high inflation, eroding corporate profits and increasing the burden on retirees.
He stated that the Japanese government and the central bank must reach a new economic framework to replace "Abenomics," which was introduced by former Prime Minister Shinzo Abe in 2013. This policy mix focused on large-scale monetary and fiscal stimulus aimed at ending deflation.
"The Bank of Japan should gradually raise interest rates, while the government needs to restore fiscal health under a new consensus to replace 'Abenomics,'" Kono said. "The best measure to address rising living costs is to reverse the weak yen trend and promote a moderate appreciation of the yen."
Taro Kono lost in last year's ruling Liberal Democratic Party leadership election, with current Prime Minister Shigeru Ishiba winning. After the Liberal Democratic Party's poor performance in last month's Senate elections, calls within the party for Ishiba to step down and hold a new leadership election are growing louder. When asked if he would run in a new leadership election if the Liberal Democratic Party held one again, Kono declined to comment
