The Nikkei-225 has hit a record high but can Sanae Takaichi fix Japan’s economy?
Japan’s Nikkei-225 index leapt to a record high on Monday in cheerful reception of Sanae Takaichi’s election as its ruling Liberal Democratic Party’s leader. She will be Japan’s first woman prime minister and investors seem quite thrilled that she’s likely to loosen fiscal policy and nudge the Bank of Japan (BoJ) to ease credit.
On paper, the BoJ is independent, but it displays a propensity to act in line with the government’s will. Ironically, Japan has long been a notable example of diminishing returns on stimulus action aimed at rescuing an economy from stagnancy.
The BoJ even ran a negative interest rate policy for about eight years, penalizing banks for keeping cash idle, with little to show for it. That ended in March 2024, when it also began to reduce its quantitative bond purchases.
Investors might expect the BoJ to loosen policy again, which may give speculative yen carry trades a boost. Broadly, though, what good it’ll do for jobs and household incomes is unclear. Lost Japanese dynamism needs novel policy responses. The West’s turn against immigrants, for example, offers Japan a chance to diversify its pool of tech talent. Tokyo must think beyond the same old devices.
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