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CNA
an hour ago
- CNA
Japan election could further hamper BOJ's drive to raise rates
TOKYO: Japan's central bank may face political pressure to keep interest rates low for longer than it wants, as opposition parties favouring tax cuts and loose monetary policy are expected to gain influence after a Jul 20 election. Opinion surveys suggest Prime Minister Shigeru Ishiba's coalition may lose its majority in the upper house of parliament, forcing it to court an array of smaller parties pushing for easier fiscal and monetary policy. The governing bloc led by Ishiba's Liberal Democratic Party (LDP) is already a minority in the more powerful lower house, so a stalemate in both chambers could give opposition parties outsized influence in policy decisions. Ishiba has supported the Bank of Japan's (BOJ) policy of gradually lifting interest rates from near zero as inflation picks up in the world's fourth-biggest economy, while trying to curb the biggest government debt burden in the industrial world. But if opposition groups gain traction with their pressure on the BOJ to avoid rate hikes and for the government to cut the sales tax, that could boost bond yields and complicate the bank's efforts to normalise monetary policy, some analysts say. The BOJ declined to comment on the potential impact of the election on monetary policy. "There's a 50 per cent chance the ruling coalition could lose its majority in the upper house, which could lead to increased debate about cutting Japan's consumption tax rate," said Daiju Aoki, chief Japan economist at UBS SuMi Trust Wealth Management. "That would push up Japan's long-term interest rates by stoking concern over the country's finances," he said. DEBT SET TO RISE Sohei Kamiya, head of the upstart right-wing party Sanseito, has criticised the BOJ for slowing its bond buying when the economy remains weak. "The Ministry of Finance and BOJ should work hand in hand in taking aggressive steps for a few years to boost domestic demand," Kamiya told a press conference this month. Another small group, the Japan Innovation Party, wants the BOJ to go slow in raising rates to restrain the cost of interest on the government's debt. Yuichiro Tamaki, head of the Democratic Party for the People, a party seen as a strong candidate to join Ishiba's coalition, has urged the BOJ to loosen, not tighten, monetary policy to keep the yen from rising and hurting the export-reliant economy. Even if the coalition keeps its majority, Ishiba may need to ditch his hawkish fiscal tilt and boost spending to cushion the economic blow from threatened US tariffs and rising costs of living. "There's a good chance the government will compile an extra budget to fund another spending package to the tune of ¥5 trillion to ¥10 trillion (US$35 billion to US$70 billion). That would push up bond yields further," said former BOJ board member Makoto Sakurai, who expects the central bank to avoid raising rates at least until March. Japan's public debt is equal to 250 per cent of gross domestic product, far above that of Greece at 165 per cent. The government spends nearly a quarter of its budget to finance a ¥1,164 trillion debt pile, with the cost expected to rise steadily as the BOJ exits zero-interest rates. "NEED TO BRACE" To be sure, inflation, above the BOJ's 2 per cent target for three years, boosts nominal tax revenues, which can help the government avoid ramping up bond issuance to fund further spending. But cutting the sales tax rate, an idea Ishiba has ruled out for now, would leave a bigger hole in Japan's finances. Once a fringe idea, cutting the 10 per cent sales tax is now among Japan's most popular economic policy proposals. In a recent poll by the Asahi newspaper, 68 per cent of voters thought a sales tax cut was the best way to cushion the blow from rising living costs, compared with 18 per cent who preferred cash payouts. If the sales tax is on the chopping block after the election, it is the kind of vital issue that could prod Ishiba to dissolve the lower house and call a snap election - a move that would prolong political uncertainty. If Ishiba were to step down, an LDP race to replace him could revive market attention to candidates like Sanae Takaichi, an advocate of aggressive monetary easing whom Ishiba narrowly beat in the party's leadership race last year. Unlike Ishiba, who gave a quiet nod to BOJ policy normalisation, Takaichi has said it would be "stupid" for the central bank to raise rates. All this would mean the BOJ's rate hikes, already on pause due to uncertainty over US tariffs, could be put on hold even longer. "We may need to brace for a long period of political uncertainty and market volatility," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities.
CNA
3 hours ago
- CNA
Commentary: China's Yellow Sea moves put South Korea's new president in a tight spot
BUSAN: Since 2018, China has installed several marine structures in overlapping South Korean-Chinese waters in the Yellow Sea. There are now three of them, which Beijing refers to as 'deep-sea fishery aquaculture facilities'. This has been a point of contention between the two governments, but the issue has risen in South Korean public awareness after Chinese coast guard ships and civilian boats forced away a South Korean research vessel sent to investigate these structures in February. This led to a two-hour standoff, during which the South Korean coast guard was also deployed. China has rejected requests from South Korea to relocate the structures outside of the shared area and in May unilaterally declared 'no-sail zones' within the area, according to a report by Asia Maritime Transparency Initiative. The situation creates a tough dilemma for South Korea, especially its new progressive president, Lee Jae-myung. Unlike his conservative predecessor, Mr Lee wants to pivot away from a United States-aligned hawkishness on China and pursue a more transactional relationship which does not tie South Korea into a camp in the emerging Sino-US cold war. But that would almost certainly require appeasement of China – such as tolerating these Yellow Sea encroachments. PARALLELS WITH SOUTH CHINA SEA China's moves in the Yellow Sea parallel its behaviour in the South China Sea. There, for decades, China has steadily encroached on the maritime claims of the littoral states, most particularly Vietnam and the Philippines. China has justified these expansions via an ostensibly historical claim to the South China Sea – the nine-dash line. Such claims are highly contestable, of course. Almost every nation can put forward historically based claims to adjacent but disputed territory. Indeed, the United Nations Convention on the Law of the Sea (UNCLOS) was promulgated precisely to adjudicate these sorts of irreconcilable assertions. And an UNCLOS arbitration panel ruled unanimously against the nine-dash line in 2016. China has ignored that ruling and continued to assert its position by reclaiming land, building artificial islands, and ramping up its air and naval facilities and patrols. To avoid the open perception of military expansion however, Chinese civilian fleets – fishing boats and the coast guard – have led this territorial creep. The military only shows up later, after other claimants have effectively given up trying to stop the Chinese takeover. Strategic theory calls this 'grey zone tactics' - craftily changing facts on the ground (and water) without the explicit use of force. China's opponents then struggle to find an appropriate response. For example, the US is a security partner to both the Philippines and Vietnam, but America is unlikely to risk war with China over low stakes like coast guard vessels circling sand bars. GREY ZONE TACTICS IN THE YELLOW SEA China's steady gains in the South China Sea have likely encouraged it to try the same strategy in the East China Sea and the Yellow Sea. Pushing into the East China Sea has been hard. Japan has the resources and naval capabilities, which the Philippines and Vietnam lack, to push back on Chinese maritime expansion. But the Yellow Sea is a better domain for China. Its North Korean ally is one the relevant littoral states, and it will do nothing to deter China. South Korea, the other relevant party, has a capable but small navy. Most of South Korean defence spending goes into land power. Although South Korea has a long coast, the North Koreans have built such a massive army – 1.5 million men – and stationed it so close to South Korea's capital, that South Korea spends disproportionately on its army and air force to outgun the North Korean threat. The South, for example, recently considered building an aircraft carrier to challenge China's maritime expansion, but the national legislature rejected it as too expensive. At present, South Korea mostly relies on US naval power for maritime security. This arrangement has been feasible in the past, but the Chinese navy is expanding rapidly. The US is unlikely to risk war with China over indeterminate structures in the East China Sea - just as it has been reticent to help the Philippines directly over low stakes like shoals and coral reefs. TRICKY FOR SOUTH KOREA'S NEW PRESIDENT All this puts South Korea's president in a tight spot. South Korean progressives have a long foreign policy tradition of anti-Americanism and downplaying North Korean totalitarianism to facilitate detente. More broadly, this has led to equivocation on Russia and China, and a reticence to admit that China, Russia and North Korea cooperate. Mr Lee, for example, has blamed Ukraine for its invasion by Russian and said South Korea should not help Taiwan if China attacks it. This nationalist-minded foreign policy is attractive for the independence it promises from American 'domination'. But it also means that South Korea must stand on its own if North Korea, China and Russia bully it. The South Korean public opinion senses this. The public strongly supports the US alliance and has become increasingly anti-Chinese. According to a survey by JoongAng Ilbo and the East Asia Institute in June, 66.3 per cent of respondents said they held an unfavourable view of China. This is up from 63.8 per cent in a similar survey last August. If Mr Lee is seen as folding before Chinese pressure in the Yellow Sea, the public backlash will be sharp. On the other hand, if Mr Lee falls back on alignment with the US to push back China, the price will be greater South Korean cooperation on Taiwan, the East and South China Seas, Ukraine, and so on. This choice was easy for Mr Lee's conservative predecessor. For Mr Lee, it is likely to lead to a sharp foreign policy fight inside his left-progressive coalition.
CNA
10 hours ago
- CNA
EU wants to see China taking more ambitious climate action
BEIJING: The world needs China to show more leadership on climate action, EU Climate Commissioner Wopke Hoekstra said on Sunday (Jul 13), highlighting the importance of cutting planet-heating emissions and reducing the Chinese economy's reliance on coal. Hoekstra is in Beijing for high-level talks with Chinese officials on environmental and climate issues at which he also wants to encourage China to stop building new coal-fired power plants and phase out use of the fossil fuel. "We do encourage China to take more of a leadership role going forward and really hit the road with meaningful emission reductions in the next couple of years, and also move out of the domain of coal," Hoekstra told Reuters in an interview. The number of coal power plants in the pipeline has been increasing in China - the world's largest greenhouse gas emitter, according to the World Economic Forum. In the first three months this year, China's approved 11.29 gigawatts (GW) of new coal power plants exceeded the approval rate in the first half of 2024, a June report by environmental group Greenpeace showed. Last week, Hoekstra told the Financial Times the EU was holding off on signing a joint climate declaration with China unless Beijing pledges a greater commitment to reduce emissions. "We are open to looking into a potential declaration, but ... the thing that is most important about these types of statements is the content that goes into it," he said when asked about the issue, without specifying what commitment the EU hopes to see from China.
