Katayama to review 7 trillion yen idle funds; Kiuchi says no more excessive easing

Kiuchi's comments reduce the likelihood of government opposition to additional BOJ tightening, likely interpreted as supporting a sooner rate increase, coinciding with Tokyo core inflation rising to 2.7%. That could push short-dated JGB yields up and provide some support for the yen. Katayama's fund review is small compared to Japan's overall budget, but it indicates fiscal restraint when global bond markets are penalizing perceived fiscal laxity. Energy costs from the Iran war continue to be Japan's main external inflation driver, so rising oil would strengthen the case both ministers seem to endorse.

The government is cutting idle funds and signaling to the BOJ that further stimulus is unnecessary, a notable shift from the reflationary policies of the past decade.

Key points:

• Finance Minister Katayama will increase efforts to implement a Japanese version of DOGE, reviewing subsidies and government funds.
• She noted that around 200 idle funds totaling approximately 7 trillion yen will be significantly reduced through the budget process.
• Economy Minister Kiuchi avoided commenting on monetary policy, stating it falls under BOJ jurisdiction, but expressed hope for continued close communication with the government.
• Kiuchi stated that Japan no longer requires exceptional monetary stimulus, and with deflation over, there is no need for excessively loose policies.
• He remarked that Prime Minister Takaichi's administration takes a different approach from previous reflationary policies.
• The BOJ's next meeting is scheduled for October 29-30, following its September rate hike to 1.25%.

Satsuki Katayama, Japan's finance minister, has committed to intensifying a review of government subsidies and funds based on the US Department of Government Efficiency model. Meanwhile, economy minister Minoru Kiuchi stated that Japan, having emerged from deflation, no longer requires overly loose monetary policy.

Katayama stated she would boost efforts to advance a Japanese version of DOGE, the cost-reduction program started under President Donald Trump, and apply it to subsidies and government funds. She indicated that the government will significantly reduce idle funds during budget deliberations, mentioning that around 200 such funds hold approximately 7 trillion yen.

The drive to recover unspent funds occurs as investors focus on fiscal health, with global sovereign bond yields increasing and worries about government debt affecting long-term bond markets.

Kiuchi, in a separate briefing, declined to discuss monetary policy directly, noting it is under the BOJ's purview, but expressed hope that the central bank maintains close communication with the government while steering policy.

He then outlined the government's wider position. In his view, Japan no longer needs exceptional monetary stimulus, as evidenced by the BOJ's previous termination of yield curve control. Since the economy is no longer in deflation, he argued there is no justification for overly accommodative policy that promotes higher inflation, and he characterized Prime Minister Sanae Takaichi's economic strategy as different from the reflationary policies aimed at ending deflation.

The remarks stand out as they indicate government comfort with a tighter policy environment while the BOJ is raising rates. The central bank increased its policy rate to 1.25% in September, a 31-year peak, and Tokyo inflation data released on Friday showed core prices up 2.7% in September, exceeding the BOJ's 2% target, with one key underlying gauge at 3%.

The BOJ's upcoming policy meeting on October 29-30, which will also include new quarterly projections, will reveal if the mix of stronger inflation and a favorable government posture moves the next rate increase sooner.