Takaichi Tries to Press BOJ into Bond Purchases Amid Rising Interest Rates

Japanese Prime Minister Sanae Takaichi has been pushing for Bank of Japan (BOJ) bond purchases to curb rising long-term interest rates. According to a source, she directly requested government bond purchases during a meeting with BOJ Governor Kazuo Ueda on May 22. The prime minister's camp aims to suppress rate increases in anticipation of expanded bond issuance tied to aggressive fiscal spending.

The BOJ, however, remains cautious about increasing purchases due to concerns it would be perceived as 'fiscal finance' - effectively monetizing the government's deficit. The central bank has maintained that its decision to raise rates and halt the reduction of bond purchases in June was unrelated to the meeting with the prime minister.

Despite this, long-term interest rates rose sharply after the government's draft of the 'Basic Policy on Economic and Fiscal Management and Reform' touched upon the BOJ's monetary policy management during a Cabinet decision. The market has begun to price in the risk that government intervention in monetary policy could paradoxically accelerate the rise in interest rates.