TOKYO – The Bank of Japan should avoid overhauling its ultra-accommodative monetary policy now, the head of a kingmaking opposition party said Tuesday, a sign that the ruling coalition’s devastating defeat in elections this weekend end complicates its rate hike plan.

With the composition of Japan’s future government in constant flux, political uncertainty could force the BoJ to postpone raising interest rates at least for the rest of 2024, some analysts say.

Yuichiro Tamaki, head of the opposition Democratic People’s Party (DPP), said policymakers should focus on whether real wages become positive when setting fiscal and monetary policy. .

“Real wages turned negative in August and are still stalled. The Japanese economy is at a critical juncture, so the BOJ should avoid making big policy changes now,” Tamaki said at a press conference.

“Once it is certain that real wages will exceed 4% during the spring wage negotiations next year, that is when the BoJ can review its monetary policy,” he said. declared.

The remark by Tamaki, whose party emerged as a kingmaker after the ruling coalition lost its majority in weekend elections, underscores the challenge the BOJ faces in guiding the exit from ultra-low monetary policy. -flexible.

Japan’s largest labor group has pledged to seek wage increases of at least 5% in 2025, similar to this year’s big increase, although economists doubt another such increase is realistic .

The BOJ is widely expected to keep short-term rates at 0.25% at Thursday’s policy meeting, but signal its determination to continue raising borrowing costs if Japan makes progress in achieving sustainability of its 2% inflation target.

A slim majority of economists polled by Reuters expect it to forgo a hike this year, although most expect an increase by March.

Shigeru Ishiba, who became prime minister on October 1 after winning the ruling party leadership race, is seen as supporting the BoJ’s policy normalization.

But the ruling coalition’s failure to retain a majority in Sunday’s lower house elections will likely force Ishiba’s Liberal Democratic Party to court smaller opposition parties like the DPP to stay in power.

The DPP saw seats in the lower house quadruple thanks to its campaign to raise real wages and household incomes, including by cutting taxes. He also criticized the BoJ’s efforts to raise rates.

“The growing influence of opposition parties in favor of maintaining accommodative monetary policy could increase the risk of delays in further rate hikes by the BOJ,” said Takahide Kiuchi, a former board member of the BoJ.

With his political position weakened by the disastrous election results, Ishiba himself may become more cautious about an anticipated BoJ rate hike, said Shigeto Nagai, head of the Japanese economy at Oxford Economics.

“Even though we continue to forecast the BoJ’s next rate hike in December, there is a significant risk of a delay,” he added. REUTERS