Written by Takaya Yamaguchi and Tetsushi Kajimoto
TOKYO (Reuters) – Japan should not raise interest rates to stem recent sharp declines in the yen to a 24-year low but instead use more fiscal stimulus to ease the pain of rising costs of living caused by a weak currency, the country’s opposition chief said. party said.
Yoichiro Tamaki, head of the People’s Democratic Party, told Reuters that a rate hike in Japan would do more harm than good, noting that the yen’s weakness was largely driven by a stronger dollar.
“The dollar is rising against all currencies. Even if the Bank of Japan raises interest rates, it will not prevent the yen from weakening but rather harm the Japanese economy,” he said.
“We must steadily mobilize fiscal spending to boost the economy,” said Tamaki, a former finance ministry bureaucrat who is experienced in monetary and currency policies.
Although his opposition party has a few seats, Tamaki is adept at discussing monetary policy and occasionally questions Bank of Japan Governor Haruhiko Kuroda in parliament sessions.
The opposition’s criticism of the government’s stimulus policy and its side effects, such as the rising costs of everything from food to fuel, are likely to gain traction with the public as an additional parliamentary session is scheduled for next month.
The opposition has come up with a countermeasure: more fiscal stimulus.
His party is calling for an emergency 23 trillion yen ($160.44 billion) stimulus package, focused on cash payments of 100,000 yen per person aimed at stimulating consumption for more sustainable economic growth.
Tamaki also urged the Bank of Japan to add a 2% nominal wage growth to the 2% inflation target stipulated in a joint government-BoJ agreement issued in 2013.
The joint statement aims to achieve 2% inflation as the central bank’s main objective. However, a combination of lukewarm wages and a rising cost of living limits real incomes, hurts household purchasing power and consumption that makes up more than half of the economy.
“We need to clearly explain to the public what indicator to use for the 2% target,” Tamaki added.
His party has proposed converting about 500 trillion yen ($3.49 trillion) of government debt held by the Bank of Japan into “permanent bonds” to help the government finance its huge debt.
In 2018, Tamaki and like-minded lawmakers proposed legislation urging the Bank of Japan to clarify its exit strategy from massive monetary stimulus and asking the government to press ahead with fiscal reform, saying the stimulus policy was stuck in a dead end.
(dollar = 143.3600 yen)