Japan's future Prime Minister Kato calls for keeping interest rates and prices low

(Bloomberg) — Japan should continue to aim for a world of constant interest rates and prices, according to Katsunobu Kato, a possible candidate to become the country's next prime minister.

Most read by Bloomberg

“It's clear that we need to move in this direction” where prices and interest rates are not stagnant, Kato told Bloomberg in an interview on Tuesday when asked if Japan was about to raise interest rates further. While caution remains warranted for the immediate future given this month's market turmoil, Kato also said years of unchanged prices and interest rates have been damaging.

“This lack of movement has created structural distortions,” Kato said. “We're finally at a point where interest rates can continue to rise.”

Kato's comments come as he plans to run in next month's election for chairman of the ruling Liberal Democratic Party to replace Prime Minister Fumio Kishida. The former health minister is an outsider but also the type of person who could be considered a compromise candidate, having not made much of a splash in the ruling party while playing a key role under the last three premiers.

To officially run for the top post, Kato needs to secure 20 backers among his fellow lawmakers, but he said he is still in the process of garnering enough support and has not yet made a formal candidacy.

Regarding monetary policy, Kato said that Japan should aim for further interest rate hikes in the future. However, it is important that the Bank of Japan proceeds cautiously.

“The Japanese economy is not yet fully healthy, so stakeholders, including the BOJ, need to proceed with caution,” he said.

The BOJ raised interest rates again in July, after raising them for the first time in 17 years in March. Governor Kazuo Ueda did not rule out the possibility of another rate hike by year-end, depending on future data. That stance contributed in part to the global market chaos this month.

Given the possibility of further interest rate hikes by the BOJ, the question of fiscal policy will be an issue that will need to be addressed in the upcoming presidential election. Japan carries the highest public debt among developed countries. The amount is expected to reach 1.105 trillion yen at the end of this fiscal year, equivalent to more than 250 percent of gross domestic product, according to the International Monetary Fund.

Kato, who also served in the Finance Ministry before entering politics, advocated a balanced approach to managing fiscal health and promoting growth.

The story continues

The hopeful new president said his main policy focus was on creating sustainable economic growth. “Real wages need to rise not just for one month, but over two or three years,” he said. Real wages for Japanese workers rose in June for the first time in 27 months after collective bargaining at several employers resulted in wage increases.

As part of his growth strategy, Kato called for major investments to boost productivity, especially given Japan's growing 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 top spokesman.

Most read by Bloomberg Businessweek

©2024 Bloomberg L.P.