Japan's Takaichi Victory Expected to Delay Bank of Japan Rate Hikes

Sanae Takaichi's recent victory as Japan's next prime minister is expected to delay but not completely halt the Bank of Japan's plans to raise interest rates. Takaichi, a conservative nationalist and proponent of aggressive fiscal stimulus and ultra-loose monetary policy, has emphasized the need for demand-driven inflation and cautioned that it is premature to declare victory over deflation amid challenges like U.S. tariffs. Analysts predict that the Bank of Japan will adopt a more cautious approach, likely postponing any rate hikes until early next year, especially as Takaichi urges closer coordination between the government and the central bank. The yen has weakened following her win, reflecting market expectations of looser monetary policy, though excessive delay in tightening risks further yen depreciation and worsening imported inflation. While Takaichi's administration may influence the Bank of Japan's independence in the near term, inflation above target and a shift toward price stability management suggest the tightening cycle will eventually proceed. Overall, her leadership signals a continuation of Japan's pro-growth economic policies with careful consideration of timing for monetary tightening.