Takaichi’s Mandate and the Bank of Japan
Takaichi’s Mandate and the Bank of Japan
Takaichi’s Mandate and the Bank of Japan
Prime Minister Sanae Takaichi called the election and she won it. She won it big. Her Liberal Democratic Party took a commanding majority in the lower house on February 8. They hold a supermajority now. The people gave her a mandate to lead and she means to use it. The win was not guaranteed but she campaigned with a fierce confidence and she ignored the critics and she took her message directly to the streets.
Takaichi is a fiscal dove and a security hawk. She wants to spend money to make Japan grow. She wants to end what she calls excessive austerity. Her plan is to cut the sales tax on food for two years. This will cost five trillion yen a year. She also wants to build the military and she wants to lift the ban on arms exports and she wants to build a new national intelligence agency to protect the borders. These are big plans and they require a lot of yen and they mark a total departure from the cautious policies of the men who came before her.
But the Bank of Japan has its own ideas. The central bank is moving toward normalization. This means they want to raise interest rates. For a long time the rates were low or negative. Now they are rising. Kazuyuki Masu is on the board of the bank. He said that further rate hikes are needed. He said this in a speech in Ehime and he told the local leaders that normalization was necessary for the country. He wants to finish the work and he wants to bring the rates back to a place where they have meaning again.
There is a gap between Japan and the rest of the world. Other countries raised their rates long ago. Japan waited. This made the yen weak. A weak yen makes imports expensive. It makes food cost more for the people. In 2025 the households spent a record amount on food and the families had less money for other things and the inflation began to hurt and the shoppers felt the sting every time they went to the market. Masu thinks raising rates will help the yen and stop the inflation. He wants to keep inflation below two percent.
Takaichi and the bank are at odds. She wants to spend and he wants to tighten. When she talks about spending the bond markets shake. The yields go up. The yield on the 10-year government bond hit 2.28 percent and the 30-year yield climbed to 3.55 percent after the vote. The investors worry about the debt. Japan has a lot of debt and Takaichi wants more. She says the growth will pay for it. The bank is not so sure. They see the inflation and they want to act and they worry that a flood of new money will only make the fire burn hotter.
The traders are watching the bank. They look at the overnight index swaps and they see a 74 percent chance of a hike by April. Some think it could happen in March at the next big decision. Takaichi has a supermajority so she can ignore the opposition in the Diet. But she cannot ignore the markets and she cannot ignore the bank and she must watch the rates. They are independent and they have the power to move and they will not hesitate if the data tells them to act.
It is a tug-of-war. On one side is the Prime Minister with her new mandate. She has the support of the young voters and the nationalists. Among those under thirty her approval is over ninety percent. She is a force on social media and she speaks plainly. She racked up twelve thousand kilometers on the campaign trail and she stood on the sound trucks and she spoke until her voice was thin and she never stopped working. She worked hard and the people saw it and the Nikkei 225 jumped nearly five percent to a record high when the result was known.
On the other side is the Bank of Japan. They are the guardians of the currency. They see the record food bills and the weak yen. They see the global trend of higher rates. They want to be like other major economies. They want to end the outlier status of Japan and they want to bring a sense of order back to the financial world.
The center-left opposition collapsed. The Centrist Reform Alliance was a muddle. People called it "5G" because the leaders were old men. They lost more than half their seats. But new parties rose up. Team Future is a party of techno-optimists. They won seats by appealing to independent voters. The hard-right Sanseito also won seats and they spoke about the national identity and they worried about the borders and they tapped into the deep anxieties of a changing society.
The world is watching Japan. Takaichi is a partner to Donald Trump. He endorsed her before the vote. She stands up to China over Taiwan and the people like her strength. She wants Japan to be a major power again. She wants the defense spending to go up and the exports to start and she wants the world to take notice of a Japan that is no longer quiet.
The conflict will come to a head in the spring. There are meetings in March and April. Takaichi will push for her industrial policies. The bank will parse the data. They will look at the wages and the prices. If the data is right they will hike the rates. This will make the borrowing more expensive for the government and it will make the spending more costly and it will test the new mandate and it will force the leaders to choose between growth and stability.
The mandate is massive but the economic forces are also massive. The yen is the field where the battle is fought. If the yen stays weak the people will suffer from high prices. If the rates go too high the growth might stall. Takaichi gambled on the election and she won. Now she must manage the victory and the bank. It is a hard job and the world is watching to see who will blink first.