Ishiba's Tax Hike Plan Could Disrupt BOJ Rate Scheme

While new Japanese Prime Minister Shigeru Ishiba will likely offer support for the Bank of Japan in its pursuit of further monetary tightening, his ambition to raise the capital gains tax could threaten the bank's path to higher rates, Kyodo News reported.

Ishiba's proposed tax hike would likely increase market volatility by causing an outflow of money from Japanese financial markets, making it harder for the BOJ to act, as per analysts.

The BOJ is expected to move ahead with additional rate hikes following Ishiba's taking office on Tuesday.

The former defense minister, an advocate of fiscal discipline, is generally seen as a backer of the central bank's ongoing shift away from its decade-long unorthodox monetary easing, which involved massive purchases of government bonds.

However, analysts said his proposed tax hike, targeting the affluent and aimed at wealth redistribution, would likely increase market volatility by causing an outflow of money from Japanese financial markets, making it harder for the BOJ to act.

"A capital gains tax hike would definitely deal a major blow to stock prices," said Koichi Fujishiro, an economist at the Dai-ichi Life Research Institute. "Such a move could cool market sentiment even before the BOJ embarks on additional rate hikes."