Home Business Japan Cabinet Shift Indicates Ongoing BOJ Easing, Economists Say

Japan Cabinet Shift Indicates Ongoing BOJ Easing, Economists Say

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Japan’s cabinet reshuffle is likely to keep the central bank’s monetary easing intact while the government may do more to ease the pain of rising prices for households, according to economists.

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(Bloomberg) — Japan’s cabinet reshuffle is likely to keep the central bank’s monetary easing intact while the government may do more to ease the pain of rising prices for households, according to economists. 

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The overhaul Prime Minister Fumio Kishida said would take place Wednesday is expected to retain the same figures in key posts including Finance Minister Shunichi Suzuki and Chief Cabinet Secretary Hirokazu Matsuno, indicating the government’s policy direction will largely stay the same. 

That means the Bank of Japan is expected to keep rock-bottom interest rates to support the economy, while a resurgence of coronavirus infection cases threatens its fragile recovery.

“The government will likely continue existing measures to support the Covid-hit economy and there’s unlikely to be major changes to the policy direction,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “BOJ policy itself is unlikely to shift much, either, because of the need for continuity.”

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Japan’s Kishida to Name Hamada as Defense Minister, NHK Says

The overhaul comes at a time when Kishida’s support rate is falling. Following former leader Shinzo Abe’s murder last month, some members of Kishida’s ruling party have come under scrutiny for ties to the Unification Church. Police said the suspected killer cited a grudge over the ex-premier’s ties to the group as a motive for the shooting. 

Abe Legacy Looms Large in Japan PM’s Plans for Cabinet Overhaul

Kishida is likely aiming to firm up public support with the cabinet reshuffle, saying all cabinet and party executives must check and review their ties with the controversial church. The continued increase in Covid-19 cases and rising prices are also weighing on consumer sentiment.

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The prime minister has pledged to do more to keep a lid on inflation after his ruling party scored a decisive victory in a national election last month for the upper house of parliament. Climbing prices of daily necessities like food and gasoline have been hitting households as Russia’s war in Ukraine has led to supply disruptions and a spike in energy and commodity prices. 

Analysts see the BOJ sticking to its current easing policy framework at least until Governor Haruhiko Kuroda’s term ends in April. The terms of his two deputies are also set to expire in March. A recent rebound in the yen leaves room for the BOJ to keep up its easing program, too, which was criticized for contributing to the Japanese currency’s slide to a 24-year low against the dollar. 

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By retaining Suzuki as finance minister, Kishida seems inclined to name an advocate of monetary easing to replace Kuroda, according to Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. Suzuki already collaborates closely with the central bank on economic policy, and has expressed support for the 2013 joint statement between the government and the BOJ — a backbone for current policy.

“Kishida has fought the upper house election saying monetary easing will stay and I don’t think there will be much disagreement over the policy stance,” Maruyama wrote in a note on Monday. He added that given the cabinet changes now, nominations for the next BOJ governor and two deputies could also come earlier than previously thought, possibly by the end of this year. 

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In addition to keeping an eye on the yen and its impact on the economy, Suzuki will face mounting pressure to restore the nation’s fiscal health after a series of pandemic-induced stimulus packages. Kishida also plans a substantial increase in defense spending in the wake of rising geopolitical tensions. 

Abe Legacy Looms Large in Japan PM’s Plans for Cabinet Overhaul

Defense Minister Nobuo Kishi, who is in poor health, will be replaced by Yasukazu Hamada, NHK reported, taking a high-profile post away from Abe’s faction within the long-ruling Liberal Democratic Party. Hamada, who has previously served in the post, will be charged with managing the promised increase in defense spending and overhaul of the country’s national security strategy.

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Trade minister Koichi Hagiuda will shift to a position in the party executive, and his successor will be cabinet veteran Yasutoshi Nishimura, NHK and other media said. Both men are members of the Abe faction.

In a cabinet that is usually 20-strong, the total number of women is likely to stay at two following the reshuffle. Sanae Takaichi, Kishida’s hawkish former rival for leadership of the LDP will re-enter the cabinet as minister for economic security, the reports said, while Keiko Nagaoka is set to become the new education minister. 

Seiko Noda, the minister in charge of tackling the falling birthrate and regional revitalization is set to leave the cabinet and have her roles split between two men. 

(Updates with details from paragraph 12.)

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