Takaichi win as Japan leader may delay, not derail, BOJ rate hikes
But Governor Kazuo Ueda kept markets guessing last week, warning of global uncertainties that could discourage firms from raising wages.
"Ueda appeared to be in no rush hiking interest rates anyway. Takaichi's win will make it even more likely the BOJ will take a wait-and-see mode and hold off raising rates in October," said Mari Iwashita, executive rates strategist at Nomura Securities.
At the same time, former central bank official Nobuyasu Atago said, "The BOJ faces a new challenge of creating a channel of trust and communication with Takaichi's administration, which might take some time."
'THINGS HAVE CHANGED' SINCE ABE
Takaichi has been a vocal advocate of "Abenomics", a hefty mix of government spending and monetary stimulus deployed by her mentor, then-premier Shinzo Abe, to pull Japan out of deflation and ease the pain of a surging yen on the export-reliant economy.
Although she has toned down comments such as calling last year's rate hike "stupid", Takaichi has retained ties with reflationist-minded lawmakers and economists who advise her on policy.
Her stance contrasts with that of Ishiba and his predecessor Fumio Kishida, who nodded to the BOJ's efforts to roll back stimulus as accelerating food inflation - partly caused by higher import costs from a weak yen - hit households.
With markets fully pricing in another rate increase by early next year, delaying a hike for too long could unleash sharp yen falls that would boost import prices, exacerbating inflation.
Some investors expect Takaichi's win to push the dollar, now around 147 yen, above 150 yen - a level of yen weakness that drew verbal warnings from Japanese authorities in the past.
"Given her reflationist streak, there's a chance Takaichi could meddle in monetary policy," said former BOJ board member Takahide Kiuchi, who expects no rate hike this month. "But I don't think her administration would force the BOJ to overhaul its rate-hike plans altogether, unless the U.S. economy weakens significantly."
Diplomatic considerations could also affect Takaichi's stance on monetary policy, some analysts say.
The Trump administration, which favours a weaker dollar to boost U.S. exports, has signalled displeasure over the yen's softness, with Treasury Secretary Scott Bessent saying in August the BOJ was "behind the curve" in tackling inflation.
Trump is expected to visit Japan this month, with some media reporting he could arrive days before the BOJ's October 29-30 meeting.
"In the past the yen was strong, so low interest rates were acceptable. Now that higher inflation is causing difficulties, it's probably harder for Takaichi to criticise monetary policy as much as before," said Tomohisa Ishikawa, chief economist at Japan Research Institute.
"Things have changed from when Takaichi used to work together with Abe."
(Reporting by Leika Kihara; Additional reporting by Satoshi Sugiyama, Makiko Yamazaki and Yoshifumi Takemoto; Editing by William Mallard)
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