Abe’s LDP Party Signals Dramatic Shift on BOJ in Election Pledge

What's Behind Japan's Latest Policy U-Turn?

After making action by the Bank of Japan a centerpiece of its past election agendas, Prime Minister Shinzo Abe’s party has no reference to monetary policy in its campaign platform for the election next month.

Documents released by the ruling Liberal Democratic Party on Friday don’t mention the BOJ or monetary policy, in stark contrast to platforms issued before the last three national elections from 2012 to 2014. The upper house election is scheduled for July 10.

Economists say the dramatic shift signals a reluctance to emphasize BOJ policy amid criticism over its negative rate strategy from lawmakers and households. It also supports the view of economists who project no further easing at the next policy meeting on June 15-16.

“This is a big shift,” said Yasuhiro Takahashi, an economist at Nomura Securities Co. in Tokyo. “There is little political pressure on the BOJ. Chances of additional stimulus before the election are very low.”

In the LDP platform, the party says it will use all measures to achieve a target of expanding the nation’s gross domestic product to 600 trillion yen ($5.5 trillion); GDP stood at 503 trillion yen in the first quarter. The documents also say the party will make the most of a zero-interest rate environment for investment and loans.

“The perception of a negative rate policy has been so terrible among Japanese people that the LDP doesn’t want to bring that forward,” Takahashi said.

Previous Pledges

In 2012, when Abe took over as prime minister, his party pledged “bold monetary policy through a strong coordination between the government and the BOJ.” In 2013, the platform promised “a different level of monetary policy.” And before an election in 2014 Abe’s party pledged to conduct bold monetary policy.

Japan’s consumer confidence dropped in February after BOJ Governor Haruhiko Kuroda adopted a negative 0.1 percent interest rate on Jan. 29 and hasn’t been restored through May.

Kuroda has been called to parliament 37 days this year to answer questions from lawmakers, the most days for a central bank governor since 2002. Lawmakers have repeatedly grilled him about whether negative rates will hurt households and if that puts their financial assets in danger.

In response, Kuroda has said he is certain the negative rate policy is effective while it will take some time for its benefits to spread to the economy.

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