Japan’s new PM signals environment not suitable for interest rate hike

New Japanese Prime Minister Shigeru Ishiba said after meeting the nation's central bank governor on Wednesday that the environment was not right for an interest rate increase.

Ishiba's new government has been met with market volatility after he suggested that the Bank of Japan might continue hiking interest rates, while he also flirted with a possible tax increase as he seeks ways to restore Japan's fiscal health.

"Personally, I do not believe that we are in such an environment. I don't think we are in the environment for further rate hikes," Ishiba told reporters after meeting with Bank of Japan governor Kazuo Ueda.

"The economy will continue to develop sustainably while maintaining an easing trend. The economy will continue to move toward ending deflation. That's the hope I expressed to the governor," Ishiba said.

Ishiba officially took office after a parliamentary vote on Tuesday, replacing Fumio Kishida after Kishida stepped down as the leader of the long-ruling Liberal Democratic Party (LDP).

Ishiba said he would continue Kishida's work but markets reacted negatively to his selection over more market-friendly rivals. The yen has surged over his support for interest rate hikes, which, along with the possibility of tax increases, caused stocks to plunge.

He reiterated on Wednesday that he was not in a position to tell the Bank of Japan "what to do".

The BoJ raised borrowing costs in March for the first time since 2007 and again in July in initial steps towards normalising the bank's super-easy monetary policy, causing the yen to surge while fuelling unease across world markets.

Ueda separately told reporters that he explained to Ishiba that the BoJ would "adjust" the degree of its easy money policy if the economy trends as he expects.

"I explained that our monetary policy is in an extremely easy state and it should firmly support our nation's economy," Ueda said.

Ueda also said he told Ishiba that Japan has "adequate time" to assess the economy before the bank takes steps to further normalise its policy.