(Bloomberg) — Japan should continue to strive for a world in which interest rates and prices keep moving, according to Katsunobu Kato, a potential candidate for the country’s prime minister.
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“It’s clear that we need to move in this direction” where prices and tariffs don’t stagnate, Kato told Bloomberg in an interview Tuesday, when asked whether Japan is in a stage to raise tariffs further. While caution is still warranted for the foreseeable future given the market turbulence this month, Kato also said years of stagnant prices and tariffs had been damaging.
“That lack of movement created structural distortions,” Kato said. “We’re finally reaching a stage where rates can continue to move.”
Kato’s comments come as he plans to run in the ruling Liberal Democratic Party’s leadership election next month to replace Prime Minister Fumio Kishida. The former health minister is an outsider, but also the type of person who could emerge as a compromise candidate, given his track record of keeping a low profile in the ruling party while playing a key role under the last three prime ministers.
Kato will need to recruit 20 backers from among his fellow lawmakers to officially run for the top job, but he said he is still working to gather enough endorsements. He has yet to formally announce his candidacy.
On monetary policy, Kato said Japan should pursue further interest rate hikes in the future, although it is important for the Bank of Japan to proceed cautiously.
“The Japanese economy is not yet fully healthy, so stakeholders including the BOJ should take a cautious approach,” he said.
The BOJ raised interest rates again in July, following its first hike in 17 years in March. Governor Kazuo Ueda did not rule out the possibility of another rate hike by the end of the year depending on future data, a stance that partly contributed to the global market chaos this month.
Given the potential for additional rate hikes from the BOJ, fiscal policy management will be an issue to be addressed in the upcoming leadership election. Japan has the heaviest public debt of any developed country, with the amount expected to reach ¥1.105 trillion by the end of this fiscal year, equivalent to more than 250% of gross domestic product, according to the International Monetary Fund.
Kato, who also worked at the Ministry of Finance before entering politics, advocated a balanced approach to managing financial health and pursuing growth.
The leader said his main policy focus was achieving sustainable economic growth. “Real wages should not just rise for one month, but over two or three years,” he said. Real wages for Japanese workers turned positive in June for the first time in 27 months, after wage negotiations with several employers led to pay increases.
As part of his growth strategy, Kato called for major investments to boost productivity, especially given Japan’s increasingly severe labor shortage. Kato pushed for reforms in labor practices and also served as health minister during the early months of the pandemic, after which he became Japan’s chief spokesman.
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