Japan's inflation rate rises as Takaichi prepares to announce major stimulus package

Japan’s inflation rate rose in October, official data showed Friday ahead of the expected announcement of a major stimulus package by Prime Minister Sanae Takaichi’s government.

The bundle of measures was expected to be worth at least 20 trillion yen ($127 billion) and to include energy subsidies and tax cuts to help consumers and businesses.

The year-on-year rise in core consumer prices was 3.0 percent, which excludes fresh food, compared to 2.9 percent in September and was in line with market expectations.

Takaichi came to power a month ago with a pledge to fight inflation.

Her predecessor, Shigeru Ishiba, lasted barely a year, suffering a string of poor election results in part because of rising prices.

But Takaichi’s package has stoked fears about adding to Japan’s already colossal debt pile, sending government bond yields to record highs and with the yen lower in recent days.

Reports also say that Takaichi – an acolyte of big-spending former premier Shinzo Abe – will push back the target date for achieving a primary budget surplus.

A weaker yen raises prices of imports for resource-poor Japan, which relies heavily on foreign goods – including food, energy and raw materials for manufacturing – to power its economy.

“Excessive yen depreciation could push up import prices and fuel public concerns about inflation,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.

“It could have a negative impact on the administration and its approval ratings. It could also increase the likelihood of a Bank of Japan rate hike in December.”

During a Tuesday meeting on taxation, Takaichi reiterated her big spending pledge to fight inflation.

“To build a strong economy, we will implement strategic fiscal spending under the concept of responsible and proactive fiscal policy,” she said.

“Above all, our top priority is addressing the rising prices that our citizens are facing,” she said.

Diplomatic spat

Takaichi, who like Abe has in the past favoured ultra-low interest rates, met with BoJ governor Kazuo Ueda on Tuesday.

Ueda told reporters that Takaichi made no policy request but did not disclose details of their discussions, including about the yen.

Further concern for Asia’s second-biggest economy comes from Japan’s ongoing diplomatic spat with China following comments by Takaichi about Taiwan.

China has already summoned Tokyo’s ambassador and advised its citizens against travel to Japan, where Chinese form the biggest cohort of foreign tourists.

Media reports this week said that China will also suspend Japanese seafood imports. Neither government has confirmed the move.

The row was sparked by Takaichi suggesting that Japan could intervene militarily in any attack on Taiwan.

China claims democratic Taiwan as part of its territory and has threatened to use force to bring the self-ruled island under its control.