Japan's ruling coalition should avoid direct involvement in monetary policy and instead concentrate on strengthening the economy to absorb potential strains from further interest rate increases, the leader of the coalition's junior partner said in an interview.
Hirofumi Yoshimura, who leads the Japan Innovation Party - a partner to Prime Minister Sanae Takaichi's Liberal Democratic Party - told Reuters on Sunday that decisions about rate hikes belong to the Bank of Japan. He said elected officials ought not to try to influence the central bank's judgments on interest rates.
"As for rate hikes, that's something the BOJ ought to decide. Politicians shouldn't intervene," Yoshimura said, adding that the BOJ would weigh various market conditions and engage in dialogue with markets when making its decisions. "I think the government shouldn't meddle in detail."
Yoshimura acknowledged that any BOJ move to lift interest rates could inflict some pain, for example through higher mortgage costs. At the same time, he noted that the current weak yen makes a rate increase a conceivable option. In that context, he said, fiscal policy should be used to strengthen the economy so it can better cope with the impact of higher rates.
The remarks indicate the coalition is likely to emphasize fiscal measures to support growth rather than pressing the BOJ to postpone interest-rate rises that could help counter further depreciation of the yen. Yoshimura framed this approach as a way to shield households and firms from the fallout of monetary tightening.
Sales tax suspension and funding options
Yoshimura reiterated support for a two-year suspension of the 8% consumption tax on food, a pledge renewed by Prime Minister Takaichi after her party's election victory on February 8. Under current rules, food is taxed at 8% while other goods carry a 10% levy.
Takaichi has said the government aims to implement the tax suspension by fiscal 2026, after discussions on timing and funding in meetings with ruling and opposition parties. Yoshimura said it is possible to complete the measure during fiscal 2026 and urged that it be enacted at the earliest practicable date.
He reiterated calls to secure funding through a mix of non-tax revenue and reductions in wasteful spending and subsidies. Yoshimura specifically mentioned that surpluses from Japan's foreign currency reserves constitute non-tax revenue and "will likely be considered as one option." That line echoed remarks made last week by Finance Minister Satsuki Katayama.
Yoshimura's comments increase the probability that the government will look at using parts of Japan's $1.4 trillion foreign exchange reserves - a key reserve for potential future yen interventions - to help finance the tax cut and related spending measures without issuing fresh debt.
Market focus on the yen and BOJ timing
Takaichi's decisive election win has intensified market scrutiny over whether she will press for more expansionary fiscal or monetary policies. Markets had reacted to earlier calls for such policies with a sell-off in the yen and Japanese government bonds late last year amid concerns over the country's fiscal position.
The BOJ raised its policy rate to 0.75% in December, a move that drew limited pushback from Takaichi's administration at the time, signaling the premier's sensitivity to yen weakness that elevates import costs and broad inflation. Since the election, the yen has recovered somewhat, but market pricing still reflects a chance of another BOJ rate hike by April.
Yoshimura described the weak yen as a mixed development for Japan's economy - beneficial for exporters but burdensome for households facing higher living costs. Asked whether authorities should step in to support the yen if it slid below the psychologically important 160 to the dollar, he said it was inappropriate to prescribe actions tied to a specific yen level. Instead, he emphasized the need for authorities to take appropriate and timely action as circumstances require.
As of Monday morning in Asia, the dollar was trading at 152.66 yen, after gaining nearly 3% last week - a jump described as its largest rise since November 2024.
Implications for policy and markets
Yoshimura's comments signal a preference within the coalition for fiscal measures to buttress the economy rather than explicit political attempts to steer central bank decisions. The endorsement of tapping foreign exchange reserves as part of the funding mix for the planned food tax suspension highlights the government's interest in non-debt financing options.
How these policy choices unfold - the timing of the sales tax suspension, decisions about reserve use, and the BOJ's rate path - will remain central to market attention in the coming months as investors gauge the balance between supporting households and maintaining financial stability.
Summary: The leader of the coalition's junior partner urged the government to refrain from interfering in BOJ decisions, called for early implementation of a two-year suspension of the 8% food sales tax, and said surplus foreign exchange reserves could be considered a non-tax funding source. He highlighted the need to use fiscal policy to build resilience against the potential impacts of future rate hikes.