Japan's Political Scandal May End Ultra-low Interest Rates

Japan's political scandal looks set to wipe out heavyweights of the ruling party's once-mighty faction favoring big monetary stimulus, easing the path for the Bank of Japan (BOJ) in pulling the economy out of decades of ultra-low interest rates, Leika Kihara reported for Reuters.

Prime Minister Fumio Kishida recently announced he would make changes to his cabinet as he seeks to stem the fallout from a fundraising scandal that has further dented public support for his embattled administration. I Photo: 首相官邸ホームページ

Prime Minister Fumio Kishida recently announced he would make changes to his cabinet as he seeks to stem the fallout from a fundraising scandal that has further dented public support for his embattled administration.

The political upheaval comes at a critical moment for the BOJ, which is planning an exit from ultra-low interest rates on rising inflation and signs of broadening wage hikes. Most market players predict an end to Japan's negative rates sometime next year.

While the BOJ is legally independent of government interference in deciding monetary policy, political pressure has historically had a significant influence on its decisions.

Once led by former premier Shinzo Abe, who was shot and killed during an election campaign last year, the faction known as "Seiwa-kai," or so-called "Abe faction," has retained huge influence on policymaking including under Kishida's administration.

The faction consists of many advocates of massive fiscal and monetary stimulus. Among them is ruling party heavyweight Hiroshige Seko, who has repeatedly called for big fiscal spending and made clear his strong preference for ultra-loose policy to continue.

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