Takaichi win as Japan leader may delay, not derail, BoJ rate hikes

With Sanae Takaichi set to become Japan’s prime minister, advancing expansionist economic policies, chances have risen that the central bank will avoid raising interest rates this month, though the pause may not last if it batters the yen.

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Ms. Takaichi, likely to become Japan’s first female leader next week after winning the presidency of the ruling party on Saturday, stood out in the race as the only proponent of big spending and loose monetary policy.

Parliament is expected to vote the conservative nationalist in as premier on Oct. 15 since her Liberal Democratic Party (LDP) is the largest in parliament, though this is not assured as the LDP’s coalition lost its majorities in both houses under her predecessor, Shigeru Ishiba.

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Upon winning the race, Ms. Takaichi made clear the government will take the lead in setting fiscal and monetary policy — and that her priority would be to reflate demand and the broader economy.

Describing recent price rises as driven by higher raw-material costs, Ms. Takaichi warned it was premature to declare victory over deflation as companies start to feel the pain from President Donald J. Trump’s US tariffs.

“What would be best would be to achieve demand-driven inflation, where wages would rise and drive up demand, which in turn causes moderate price rises that boost corporate profits,” she told a press conference after her victory.

Her ascension makes it more likely the Bank of Japan (BoJ) will refrain from raising rates on Oct. 30, analysts say.

“Takaichi is not seen as supportive of interest rate hikes, which could make it more difficult for the BoJ to proceed with tightening,” said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.