Sanae Takaichi's election as leader of Japan's ruling Liberal Democratic Party on Saturday cast doubt on an early interest rate hike by the Bank of Japan.
As food and other prices remain high in the country, some in financial markets expected the BOJ to raise interest rates as early as at its next policy-setting meeting scheduled for late October.
However, the BOJ may now postpone a further rate hike as Takaichi, who is likely to become prime minister this month, appears to prioritize economic growth and urge the central bank to communicate closely with the government.
"The government should take responsibility for monetary policy," Takaichi said at a news conference following her victory in the leadership election, urging the BOJ to keep step with the government. The government "should communicate closely with the BOJ," she stressed.
She also said that the Japanese economy is "on a tightrope," suggesting that it is appropriate to maintain accommodative monetary conditions.
During the previous LDP leadership race last year, Takaichi said it was "stupid to raise interest rates now."
"Coordination between the government and the BOJ over a rate hike is expected to take time," said Mari Iwashita, executive rates strategist at Nomura Securities, suggesting that it will be difficult for the central bank to raise interest rates at the October meeting.
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