Weak yen becomes weapon for Kishida opponents in Japan upper house election

The yen dropped to a new 24-year low of 136.330 per US dollar on Tuesday. PHOTO: REUTERS

TOKYO (BLOOMBERG) - Campaigning for Japan's upper house election kicked off with Prime Minister Fumio Kishida fighting off criticism of the ultra-loose monetary policy he continues to support despite worries that it's accelerating price increases.

Mr Kishida defended the government's approach during a televised debate Tuesday (June 21) with eight other party leaders that marked that start of campaigning for the July 10 election.

Mr Kenta Izumi, head of the largest opposition Constitutional Democratic Party (CDP), used the term "Kishida inflation" in a bid to capitalise on recent price gains that have eroded the premier's relatively strong support.

"The current inflation is caused by fuel price rises and the weak yen," Mr Izumi said in Tokyo. "It's hard to stop fuel price rises, but the question is whether you're going to neglect the weak yen."

In response, Mr Kishida, a former banker, said the current policy should be maintained, while reiterating a warning about the harm higher interest rates could cause to small businesses and homeowners.

The yen dropped to a new 24-year low of 136.330 per US dollar on Tuesday, extending losses which have already seen it shed more than 18 per cent of its value versus the greenback this year.

The prime minister has so far supported Bank of Japan Governor Haruhiko Kuroda's policies, including in a statement on Monday.

"Monetary policy has a powerful effect on foreign exchange rates," Mr Kishida said at the debate. "But it also affects small, medium and micro-enterprises and mortgage interest rates. In other words, it has a powerful effect on the whole economy."

The anxiety over inflation has injected a measure of uncertainty into an election that the ruling Liberal Democratic Party had seemed sure to win by a wide margin just weeks ago.

While the upper chamber holds less power, a convincing victory would allow Mr Kishida to put off another election test for as long as three years and avoid the "revolving door" so many of his predecessors have passed through.

Japan's fractured and unpopular opposition has long struggled to capitalise on the LDP's struggles.

A poll carried out by the Nikkei newspaper June 17-19 found 43 per cent of respondents planned to vote for the LDP, followed by 10 per cent for the Japan Innovation Party and 8 per cent for the CDP. The LDP's coalition partner Komeito garnered 6 per cent.

Mr Kishida is also set to battle over defence policy after Russia's war in Ukraine intensified concerns in Japan that China could make a similar grab for territory in Asia.

In response, the once-dovish Mr Kishida has pledged to substantially strengthen the country's defences, with a commensurate rise in spending.

The LDP's policy platform calls for the North Atlantic Treaty Organisation target of 2 per cent of gross domestic product to be kept in mind and for the country to obtain the capability to respond to a missile attack.

Still, Mr Kishida said on Tuesday that the government hadn't decided on a military spending target.

The CDP's policies stick closely to Japan's postwar pacifist tradition. It remains to be seen how much money can be made available in the world's most-indebted country, or how it will be spent.

Four months after Russia's attack, polls show voters' priorities are gradually shifting away from national security and back to pocket-book issues like reviving the economy.

With the government urging consumers to cut back on electricity use this summer amid a supply squeeze and soaring costs, the LDP has vowed to restart nuclear reactors when they are declared safe. Resistance to atomic power is fading, even in a country traumatised by the 2011 Fukushima nuclear disaster.

By contrast, the opposition CDP has vowed to move toward a society without nuclear power.

"We can't rely on one source of energy," Mr Kishida said. "One important element is nuclear power. I want to proceed with restarts as safety is confirmed."

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