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Weak Yen Becomes Weapon for Kishida Opponents in Japan Upper House Election

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(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.

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Kishida defended the government’s approach during a televised debate Tuesday with eight other party leaders that marked that start of campaigning for the July 10 election. Kenta Izumi, head of the largest opposition Constitutional Democratic Party, used the term “Kishida inflation” in a bid to capitalize 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,” 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, 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. Kishida has so far supported Bank of Japan Governor Haruhiko Kuroda’s policies, including in a statement Monday.

“Monetary policy has a powerful effect on foreign exchange rates,” 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 yen sank to a fresh 24-year low against the dollar in early Wednesday trading as risk assets rebounded and investors ventured out of havens.

Japan Inflation Cuts Into Kishida’s Support Ahead of Election

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

Kishida is also set to battle over defense 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 Kishida has pledged to substantially strengthen the country’s defenses, with a commensurate rise in spending.

The LDP’s policy platform calls for the North Atlantic Treaty Organization target of 2% of gross domestic product to be kept in mind and for the country to obtain the capability to respond to a missile attack. Still, Kishida said 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 traumatized 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,” Kishida said. “One important element is nuclear power. I want to proceed with restarts as safety is confirmed.”

Why the Yen Is So Weak and What That Means for Japan: QuickTake

(Updates with yen trading in sixth paragraph.)

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