Editorial: Updated Nov. 16, 2025.

Editorial: PM Takaichi's gov't must collaborate with BOJ to stabilize prices, fix weak yen

Article source: https://mainichi.jp/english/articles/20251114/p2a/00m/0op/022000c

Ideas

The variance between the US key rate and the Japanese key rate as been there for a very long time, as Japan at one time said the Japanese economy is too weak to increase the rate while the US increased it rate many times after the pandemic had subsided to combat inflation.

As a result the Japanese yen has continued to be weak which has put a lot of pressure on imports, importers, Japanese businesses, and Japanese consumers.

The Bank of Japan has known for a long time it needs to increase the key rate but the BOJ is a very conservative group and they don't make changes very quickly.

They have increased the key rate a few times recently but to get the yen stronger they need to raise more in line with the US dollar.

Japanese wage increases, while needed, are not going to solve the yen problem. A wage increase might decrease the stress on Japanese households slightly, but it's not going to completely fix the situation.

It sounds like the Japanese government is using the approach of letting inflation naturally decrease at its own rate without any BOJ intervention.

There are both positives and negatives for keeping an ultra low interest rate policy and for a while it might have worked for the Japanese economy, but at the same it might not work for everyone in Japan.

The ultralow rate might be good for small and midsize businesses who need business loans to keep from going out of business and or many homeowners who have mortgages as an increase in the key rate increases their home loan payments.

The key rate, as it stands now, is good for exporters as a weak Japanese yen increases profits for exporters but at the same time increases import prices, which is affected the Japanese domestic economy a lot with higher prices than normal, which has reduced consumer spending in Japan.

What the BOJ might be really saying is we know we need to maybe increase the key rate but we are going to take more time to study what is happening, especially with the US tariff situation on Japanese companies and the overall Japanese domestic economy.

At the same time, the BOJ might be listening to what the new Japanese Prime Minister is saying or wanting and holding off on any decision to increase the key rate.

Its important to mention here, that central banks, in a democracy are supposed to be independent of the government or any political party and should follow their own ideas and not the ideas or suggestions of a government.

The Japanese government has never showed away from aggressive fiscal spending and it seems the new government is going to do the same in the future.

The gasoline tax cut is like a subsidy and some will eventually have to pay such oil importers or oil wholesalers and the Japanese government will need to subsidize these groups to make sure they have the needed profits to stay in business, while helping Japanese driver and Japanese households reduce their expenses.

It also must be remembered that Japan has one of the highest debt to GDP ratios in the world which might be 250% of its GDP, which means it's spending way more than what its economy  is producing.

There are always going to be negatives and positives in any economy and fixing the inflation situation or fixing the weak yen situation is going to help some in the economy but at the same time not help some in the economy.

For example, inflation in itself, inflation might be considered not bad and not good too and again, depending on which side of the coin you are on.

For some, inflation might be positive sign that an economy is running a good level and prices are going up as more consumers and businesses spend in the economy.

At the same time if its too high it might a stress for some in the economy and it might actually reduce business and consumer spending.

And the same the the interest rate. While a low rate helps with weaker yen with exporters it can hurt importers with higher prices and affect the Japanese domestic economy too much.

Professor Hamada might be right but he doesn't make the decisions as the BOJ does and maybe the new Prime Minister too will have something say about increasing the key rate.

Conventional or normal central bank strategies has been to increase the key rate as a way to encourage less business and consumer spending in an economy as a way to get the inflation rate down, but the BOJ has resisted such strategies as they have suggested many times the Japanese economy was just too weak to increase the key rate at this time.

The BOJ probably has known for a very long time it needs to normalize its monetary policy but as mentioned before it has taken the approach the Japanese economy is just too weak to increase the rate which would help to normalize the policy.

Improving wages is good and important but its not going to solve everything in the Japanese economy.

For example, there might be a huge variance between wages for large Japanese companies and wages for small and midsize companies in Japan. It is estimated that up to 70 percent of the Japanese workforce work for small and midsize companies, which means, if wages for them are not the same large company wages there could be significant difference in how much large company consumers spend and what small and midsize consumers spending the Japanese economy.

Productivity can be a difficult measurement as to what really is productivity in one company compared to another company. But at the same time, it's known that companies in Japan are not the most productive for whatever reason. 

Some or many Japanese companies are still very traditional and haven't really transformed into modern day 21st companies, as they rely on many of the 20th modes of doing business and long hours and a rigid hierarchy system of management.

Have a nice day!