Since the economy is “great shape,” former central bank president Haruhiko Kuroda encouraged Japan to boost interest rates and tighten fiscal policy to avert inflation from Premier Sanae Takaichi’s big spending plan.

Due to strong economic growth and wage rises, Kuroda, who began “Abenomics” reflationary policies in 2013, expects the Bank of Japan to hike interest rates twice in 2026 and 2027. Japan has inflation and weak yen.

In a Tuesday interview, Kuroda said Japan should tighten fiscal and monetary measures. The BOJ should gradually boost interest rates to economic neutrality. Fiscal tightening was another Kuroda suggestion. “I wonder whether increasing spending and cutting taxes would be appropriate.”

With inflation exceeding 2% for years and a tight labor market rising wages, the BOJ halted Kuroda’s stimulus in 2024 and raised rates several times, including in December.

following Takaichi’s landslide election win on February 8, market interest has focused on whether she will strengthen calls for loose fiscal and monetary policy, which she had to tone down following a selloff in the yen and government bonds late last year due to market fears over Japan’s finance

Kuroda, Japan’s top currency diplomat from 1999 to 2003, said currency intervention may briefly alter yen swings.
Kuroda said the BOJ may raise its benchmark policy rate from 0.75% to 1.5-1.75% in coming years if the economy stays strong.