FX.co ★ Japan's new prime minister intends to tackle inflation and deflation

Something fascinating is happening in Japan! Shigeru Ishiba, the country’s new prime minister, has set out to defeat both inflation and deflation once and for all.

The new head of Japan’s government has declared war on the current issues and tasked his team with creating a program to support the national economy. Ishiba kicked off the development of a comprehensive plan aimed at the ultimate victory over deflation.

He also announced that the stimulus package the cabinet will prepare includes measures to ease the burden of rising living costs for citizens. In addition, the government plans to boost economic growth and strengthen protection against natural disasters.

Many analysts see Ishiba as a supporter of tough monetary and fiscal policies. Some investors are worried that he might take overly aggressive steps with Japan’s monetary policy. As a result, Nikkei, Tokyo’s stock exchange index, saw a sharp drop. This happened before the parliament officially approved Ishiba.

For a long time, the Bank of Japan has followed an extremely loose monetary policy, necessary to stimulate the market and pull the country out of a long deflationary slump. In the spring of 2024, for the first time in 17 years, the regulator raised the key interest rate, which had been negative. Then, in late July, the Bank of Japan raised the rate again, pushing it up to 0.25%. This was the second increase in six months caused by surging inflation. Notably, inflation in Japan has exceeded the 2% target. Last month, it stood at 2.6% year-over-year.