BOJ should act in line with global central banks, former Japan govt adviser says

TOKYO : Japan’s central bank should hike interest rates to ensure the country will not fall out of lockstep with the rest of the world in its monetary policy, an associate of Prime Minister Fumio Kishida whose ideas likely inspired the premier’s economic policy framework said.

Kishida’s government should unleash as much as $400 billion in public spending over the next five years to boost medical and anti-disaster investment, businessman George Hara also told Reuters in an interview on Friday.

The vision of Hara, who heads an organisation that aims to reduce poverty around the world, likely served as a backbone of Kishida’s “new capitalism” agenda through which the premier is pushing for greater wealth distribution.

As the U.S. Federal Reserve and other central banks move forward with hiking interest rates, the Bank of Japan (BOJ) should follow along to avoid Japan’s yield spreads widening too much, according to Hara, who published a book in 2009 also called “New Capitalism”.

“The yen is weakening on yield differentials, so there’s no problem if rates in Japan rise,” said Hara, who added that Japan’s monetary policy should move in line with the rest of the world.

Keeping rates around zero was negative for the many people in Japan who rely on savings or pensions to get by, Hara said. He added that those who would be hurt by higher rates in Japan were likely financial players such as hedge funds and high-frequency traders.

Hara got to know Kishida during the premier’s 2012-2017 stint as foreign minister when Hara was serving as adviser to Japan’s Cabinet Office, which oversees the government’s long-term economic planning.

Hara, who also served as a finance ministry adviser for four years through 2010, said the government should ramp up spending on medical and anti-disaster infrastructure by as much as 10 trillion yen ($81.55 billion) a year over five years.

Kishida has so far ordered his cabinet to put together a relief package to offset the economic blow from rising energy prices, which would be funded by special reserves.

The premier has also faced pressure, including from his party’s ruling coalition partner Komeito, to compile an extra budget to enlarge the size of that spending.

Japan entered the coronavirus pandemic already saddled with debt more than double the size of its $4.6 trillion economy, making it the industrial world’s most-indebted nation as a result of decades of massive spending aimed at reviving growth.

($1 = 122.6300 yen)

(Reporting by Kaori Kaneko and Yukiko Toyoda; Writing by Daniel Leussink; Editing by Andrea Ricci)

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