The Bank of Japan's decision to end its protracted period of unorthodox monetary easing gives Prime Minister Fumio Kishida an opportunity to move the nation on from the legacy of "Abenomics" and provides his deeply unpopular administration a degree of momentum ahead of an upcoming general election.

Kishida has pushed his Liberal Democratic Party's biggest faction, formerly led by the late Shinzo Abe, to disband after a political funds scandal came to light in late 2023, while urging influential lawmakers of the group to resign from key Cabinet and LDP posts.

The LDP, which has been in power for most of the period since 1955, has come under intense scrutiny as some of its groups, including the Abe faction, neglected for years to report portions of income from fundraising parties, creating slush funds in the process.

Bank of Japan Governor Kazuo Ueda (C) speaks to reporters at the premier's office in Tokyo on March 19, 2024, after holding talks with Prime Minister Fumio Kishida following the central bank's decision to end its negative interest rate policy. (Kyodo) ==Kyodo

In February, Kishida abruptly announced his intention to appear before the House of Representatives political ethics committee with the media in attendance, in effect forcing executives of the Abe faction to do the same and front the televised hearings.

An LDP lawmaker said that by undermining politicians who were close to Abe, Kishida has shored up his chances of securing a three-year second term as leader of the ruling party at its presidential election around September, despite his Cabinet's chronically low approval ratings.

On Tuesday, the BOJ scrapped its negative interest rate policy in its first rate hike in 17 years, overhauling the central bank's unconventional monetary easing framework of the past decade designed to end deflation.

"It has come into view that our 2 percent price stability target can be achieved sustainably and stably, with a virtuous cycle of pay and price increases confirmed to be in motion," BOJ chief Kazuo Ueda said at a press conference after its two-day policy meeting.

The bank's aggressive monetary easing was one of the three pillars of the Abenomics deflation-fighting program during Abe's more than seven-year tenure as prime minister from 2012, along with massive fiscal spending and an economic growth strategy.

Japanese Prime Minister Fumio Kishida speaks to reporters at the premier's office in Tokyo on March 19, 2024. (Kyodo) ==Kyodo

Monetary easing of a "different dimension" by the BOJ was a "symbol of Abenomics," the LDP lawmaker said, adding the central bank's decision "pleased" Kishida as it signaled the "complete termination" of Abe policies that were still in place.

In February 2023, the Kishida administration presented Ueda, a professor emeritus at the University of Tokyo, to parliament as its candidate for BOJ governor, replacing Haruhiko Kuroda, in its first leadership change in 10 years.

In April that year, Ueda, a former BOJ board member, became the first central bank governor hailing from academia in postwar Japan. He was expected to address the side effects of protracted monetary easing taken under Kuroda, appointed by Abe.

Kuroda's successor was also set to play a role in restoring the independence of the central bank, which has been undermined by apparent interventions by the government in monetary policy decisions under Abenomics.

A government source said Kishida, who is skeptical about whether drastic monetary easing would help end deflation, hoped Ueda, despite this touted independence, would revise policies that caused the Japanese yen's plunge, driving up import prices and eroding consumer sentiment.


After meeting with Ueda on Tuesday, Kishida described the BOJ's latest policy shift as "appropriate," saying it "has stepped into a new phase to generate positive economic outcomes" while "maintaining an accommodative environment."

Since he took office in October 2021, Kishida has concentrated on implementing measures to prod Japanese companies to raise salaries, saying the goal of his government is to realize wage growth that exceeds price hikes.

The Japanese Trade Union Confederation said in a preliminary survey earlier this month that domestic firms agreed to wage increases averaging 5.28 percent at this year's negotiations with labor unions, the sharpest rise in more than 30 years.

The Kishida administration has begun considering whether to declare an official end to deflation in the near future, given the recent robust corporate profits and positive wage momentum, the government source said.

Tatsuhiko Yoshizaki, chief economist at the Sojitz Research Institute, said Kishida has been eager to claim the end of deflation as an accomplishment of his government, as approval ratings for his Cabinet have continued to lag badly amid the LDP's slush funds scandal.

After declaring the "perfect end of deflation," which Abe was not able to do, Kishida may "dissolve the lower house for a snap election ahead of the LDP presidential race," said Yoshizaki, who is well-versed in Japanese politics.

Japanese Prime Minister Shinzo Abe meets the press at his office in Tokyo on Sept. 16, 2020, before his Cabinet resigned en masse. (Kyodo)

Abe, Japan's longest-serving prime minister, headed the largest faction within the LDP after stepping down as the leader for health reasons in September 2020, but he was fatally shot during an election campaign speech in July 2022.

Meanwhile, former BOJ board member Takahide Kiuchi, who is now executive economist at Nomura Research Institute, said the central bank's departure from its ultra-loose monetary policy indicated that the power of the Abe faction has waned.

Abe faction lawmakers called on the BOJ to uphold its radical easing as a "legacy" of the former prime minister, which prevented the central bank from normalizing monetary policy even after Ueda became governor, he said.

The slush funds scandal, however, "weakened the voice" of the Abe faction, giving the BOJ flexibility and allowing the central bank to abolish its negative interest rate policy and yield cap program, two major remnants of Kuroda's era, Kiuchi added.

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