Senior Japanese lawmaker calls for the Bank of Japan to gradually raise interest rates, preferably starting as soon as possible

Taro Kono, a senior member of Japan's Liberal Democratic Party and former foreign minister, publicly called for the Bank of Japan to accelerate its interest rate hikes and improve fiscal conditions to address the challenges posed by a weak yen driving up inflation and impacting household living standards. He emphasized that Japan must escape the situation of negative real interest rates and establish a new economic framework to replace "Abenomics."

On Tuesday local time, Taro Kono stated in a media interview that the Bank of Japan's interest rate hikes have "come too late." The central bank needs to gradually and continuously raise rates to send a clear signal to the market that it is moving away from negative real interest rates.

The seasoned politician, seen as a potential future prime minister candidate, pointed out that the weak yen, once viewed as a boon for Japan's export-driven economy, has now become a deadly source of inflation that erodes corporate profit margins and harms retirees. The best strategy to combat rising living costs is to reverse the yen's weakness and seek moderate strengthening.

Kono's remarks add new political pressure to the normalization process of Japan's monetary policy.

Japanese consumer inflation has remained above 2% for more than three consecutive years, but Bank of Japan Governor Kazuo Ueda emphasized the need to proceed cautiously regarding further rate hikes, primarily considering the expected impact of U.S. tariff policies on the economy.

Call for Accelerating Monetary Policy Normalization

Taro Kono clearly expressed support for the Bank of Japan to accelerate its interest rate hikes. When asked how quickly the central bank should resume rate hikes, Kono responded, "I think it's better to start earlier." He emphasized that it is crucial to convey the message to the market that Japan will escape the situation of negative real interest rates.

The Bank of Japan ended its decade-long massive stimulus program last year and raised short-term interest rates to 0.5% in January this year. This move was based on the judgment that Japan is close to consistently achieving its 2% inflation target. However, Kono believes that it is undesirable to maintain negative inflation-adjusted borrowing costs for an extended period.

In the face of market expectations for another rate hike by the central bank this year, Kono stated that he would not comment on each specific action but admitted, "It feels like (the rate hike) has come too late."

The former foreign minister stated, the weak yen, once seen as a boon for Japan's export economy, has now become a deadly source of inflation that erodes corporate profit margins and harms retirees. He believes that reversing the yen's weakness and seeking moderate strengthening is the best strategy to combat rising living costs.

Suggesting to Bid Farewell to Abenomics Framework

Taro Kono also called for the government and the central bank to reach an agreement on a new economic framework to replace "Abenomics." Abenomics is a combination of large-scale monetary and fiscal stimulus policies introduced by former Prime Minister Shinzo Abe in 2013, aimed at ending deflation.

Kono proposed that the central bank should gradually raise interest rates while the government should restore fiscal health under a new agreement framework to replace Abenomics. This statement reflects doubts about the effectiveness of the current economic policy framework.

As a senior member of the Liberal Democratic Party, Kono lost to current Prime Minister Shigeru Ishiba in last year's party presidential election. The Liberal Democratic Party's poor performance in last month's Senate elections has sparked calls within the party for Ishiba to step down and hold a new presidential election. When asked if he would run again if a new presidential election were held, Kono declined to comment