Inbizzy, Tokyo, – Japan’s central bank, the Bank of Japan (BOJ), may face growing political pressure to delay raising interest rates as opposition parties pushing for tax cuts and looser monetary policy are expected to gain traction in the July 20 national election.
Recent opinion polls suggest Prime Minister Shigeru Ishiba’s ruling coalition is at risk of losing its majority in the upper house of parliament. A weakened mandate could force the government to align with smaller parties advocating for aggressive fiscal stimulus and continued low interest rates-potentially disrupting the BOJ’s plans to normalize its ultra-loose monetary policy.
Political Headwinds for BOJ
The BOJ has been gradually lifting interest rates from near-zero levels, in response to rising inflation and Japan’s need to manage its massive public debt-the highest among industrialized nations. However, analysts warn that political instability could undermine these efforts.
“There’s a 50% chance the ruling coalition could lose its majority in the upper house, which could lead to increased debate about cutting Japan’s consumption tax rate,” said Daiju Aoki, Chief Japan Economist at UBS SuMi Trust Wealth Management. “That would push up Japan’s long-term interest rates by stoking concern over the country’s finances.”
The BOJ declined to comment on the potential political impact on its policy direction.
Opposition Voices Call for Stimulus
Several opposition parties have already voiced their disapproval of the BOJ’s tightening stance. Sohei Kamiya, leader of the right-wing Sanseito party, criticized the central bank’s decision to slow bond purchases, arguing that the economy remains fragile.
“The Ministry of Finance and BOJ should work hand in hand to take bold measures for a few years to boost domestic demand,” Kamiya said at a recent press conference.
The Japan Innovation Party has also urged the BOJ to go slow on rate hikes to contain the cost of servicing government debt.
Yuichiro Tamaki, head of the Democratic Party for the People-seen as a potential ally to the ruling coalition-called on the BOJ to loosen, not tighten, policy to prevent the yen from strengthening and hurting Japan’s export-driven economy.
Fiscal Flexibility May Be Needed
Even if Ishiba’s coalition manages to retain a majority, rising living costs and the threat of U.S. tariffs could force the government to abandon its fiscally conservative stance and boost public spending to cushion the blow.
Japan’s policy outlook now hangs in the balance. With political uncertainty mounting and economic challenges growing, global investors are watching closely to see whether the BOJ can stay its course-or whether political compromise will take precedence.
