By Leika Kihara
TOKYO- The risk of Japan ending up with a minority coalition government after the upcoming general election is raising concerns that the central bank could face complications in its quest to gradually wean the nation off decades of monetary stimulus.
Several recent polls have shown the possibility of the ruling coalition losing its majority in parliament, which could cost premier Shigeru Ishiba his job or force his Liberal Democratic Party (LDP) to look for an additional coalition partner to stay in power.
Such a prospect could deprive the BOJ of the political stability needed to steer a smooth lift-off from near-zero interest rates, some analysts say.
It will also cause uncertainty in markets as attention is drawn to the policy stance of opposition parties that could become a potential coalition partner, many of which favor maintaining low interest rates.
“Many opposition and ruling parties are calling for steps to boost wages, which could make it hard for the BOJ to hike rates until there is more clarity on next year’s wage developments,” said Naoya Hasegawa, chief bond strategist at Okasan Securities.
“If the ruling coalition loses, markets will start to price in the chance of aggressive fiscal spending and a delay in further interest rate hikes,” he said.
Expectations of a rate hike delay could push down short-term interest rates, potentially making it even harder for the BOJ to smoothly execute its plans for exiting accommodative policy, analysts say.
When Ishiba dissolved parliament on Oct. 9 and called a snap election to be held on Oct. 27, many analysts expected the ruling coalition to comfortably win a majority and give the new premier a freer hand on policy.
That would have allowed Ishiba to meet his pledge, made in a book he published in August, to roll back former premier Shinzo Abe’s “Abenomics” radical stimulus measures that included the BOJ’s ultra-easy policy.
“Extraordinary monetary policy cannot cure Japan’s ills,” Ishiba wrote in the book, blaming Abenomics and ultra-low rates for causing excessive yen falls, hurting commercial banks’ profits and eroding fiscal discipline. – Reuters
