BOJ could ease rates under DPJ: analysts

by Keiko Ujikane

Bloomberg

The Bank of Japan would be able to raise interest rates more easily under a government controlled by the Democratic Party of Japan, increasing household savings and spending, economists said.

Allowing borrowing costs to rise will help bolster returns on ¥1.400 quadrillion in financial assets held by households, according to Naomi Fink, Japan strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.

“Higher interest rates will enhance income for pensioners,” Fink said in an interview Thursday. “One of the reasons households aren’t spending is they have no expectations for income growth.”

The DPJ has pledged to support households by abolishing highway tolls, giving cash for child care and lowering education costs. DPJ lawmakers have said they wouldn’t interfere with BOJ policy, a departure from the governing Liberal Democratic Party’s preference for keeping borrowing costs low to spur the economy.

“Raising interest rates to a level appropriate for the economy would generate net returns on households’ financial assets and would make those assets more productive,” said Susumu Kato, chief economist at Calyon Securities. “The central bank would find it easier to raise rates under a DPJ-led administration than one dominated by the LDP, which has consistently opposed rate increases.”

Tsutomu Okubo, a DPJ lawmaker and a director of the Upper House’s financial committee, said in an interview last week that his party would respect the BOJ’s autonomy. The DPJ extended its lead over the LDP to 10 percentage points in a public opinion survey published by the Nikkei newspaper Thursday.

Prime Minister Taro Aso dissolved the Lower House on July 21, clearing the way for an Aug. 30 election that polls indicate will end his party’s almost unbroken half-century of rule.

“The DPJ will embrace the BOJ’s independence and the BOJ will decide when rates have to rise,” Fink said. “The DPJ probably won’t and shouldn’t stand in the way of the BOJ’s independence to decide to do this.”

Consumers haven’t been able to pull Japan’s export-reliant economy out of a recession because they remain cash-strapped. Wages fell for a 12th month in May, extending their longest losing streak in five years, and the unemployment rate is at a five-year high of 5.2 percent.

BOJ policymakers have come under pressure from LDP politicians when raising borrowing costs even though the central bank gained independence from the government in 1998. The benchmark interest rate is currently at 0.1 percent, and hasn’t been higher than 0.5 percent for more than a decade.