Long-term Japanese government bonds in brief went up to 2.81% on Thursday, July 3 – their highest level in thirty years – leading one analyst to REFER to her as “pride shock”, a reaction to the prospect of larger deficits stemming from the Takaichi government’s pending Basic Policy on Economic and Fiscal Management and Reform ( pride) and the Bank of Japan’s slow response to financial conditions.
This market move has put the Takaichi government on the defensive. Chief Cabinet Secretary Minoru Kihara said that the government is “closely watching market trends” and “will take every possible measure to ensure sound economic and fiscal management”.
Finance Minister Satsuki Katayama underestimated the idea that I wrote in the draft pride threatens the independence of the BOJ and suggested that the government would manage the rate of bond issuance with an eye towards maintaining market confidence.
Minister of Economic Revitalization Minoru Kiuchi suggested that markets were not simply expressing concerns about the Takaichi government’s fiscal policies.
Meanwhile, Center Reform Alliance (CRA) leader Junya Ogawa used his July 3 press conference to Scorn The government for irresponsible policies, calling the market’s reaction a warning signal for the government.
Coupled with growing signs of discontent within the Liberal Democratic Party – as suggested by Yuko Obuchi’s resignation from the LDP’s tax committee to protest the government’s plan to cut the consumption tax – it appears that political friction over the Takaichi government’s fiscal policies has just begun and will interact dynamically with financial market activity.
Talks on the consumption tax are frozen
There is a political deadlock in the diet extended at the National Conference on Social Security, which has been working on an interim report that will inform the government’s consumption tax plan.
The working committee drafting the interim report has not met since June 26, preventing the commission from finalizing the interim report before the end of the month and pushing its finalization into July (or later).
The Takaichi government had asked for the report to be completed so it could include a plan to cut the consumption tax pridebut cannot be hindered by delay in finalizing a report. At the same time, however, opposition parties may be increasingly willing to give their blessing to what appears to be a purely partisan measure.
One piece in DIAMOND describes how the prime minister’s impatience with slower and more thorough discussions led to the process’s imminent failure.
This article is reprinted with Tobias Harris’s permission Observing Japan.
