Government benefitting from higher inflation for now

We previously argued that political pressure is one reason to expect the Bank of Japan to tighten policy. However, we suspect the government's stance on inflation has become more ambiguous. While rising prices and falling real wages are creating discontent among voters, the LDP's hold on power still looks secure. Meanwhile, the combination of rising prices and low interest rates is a boon for the public finances. The upshot is that whether or not monetary policy will eventually be tightened mostly depends on BoJ Governor Ueda.