Ishiba says he will focus on boosting wages, consumption

Japan's incoming prime minister Shigeru Ishiba stressed the need for the country's economy to "fully emerge from deflation" and vowed to take steps to boost wages, in a sign his near-term focus would be to keep activity on a sustained recovery track.

He said revitalizing consumption was key for Japan to emerge from economic stagnation, adding the new administration must consider the most effective means to cushion the blow to households from rising inflation.

"Japan's gross domestic product has been flat in the past two decades," with wage growth yet to exceed inflation, Ishiba told a news conference after winning Friday's ruling party's leadership race, which de-facto makes him next prime minister due to the party's dominance in parliament.

"Unless consumption increases, the economy won't do well," he said, promising to accelerate Prime Minister Fumio Kishida's policies aimed at boosting household income through wage hikes.

The remarks suggest Ishiba will carry over many of the economic policies pursued by Kishida, who focused on measures to boost wages and endorsed the Bank of Japan's exit from massive monetary stimulus.

Parliament is set to choose Ishiba as the new prime minister on Tuesday, after which he will form a new cabinet the same day.

The yen bounced on Friday, recovering earlier losses, after Ishiba, a former defense minister seen as a critic of past aggressive monetary stimulus, won the ruling Liberal Democratic Party's leadership contest.

He beat Sanae Takaichi, a vocal proponent of deceased former Prime Minister Shinzo Abe's "Abenomics" stimulus policies, in the final run-off.

While Ishiba did not comment on monetary policy at Friday's news conference, analysts saw his win as removing one road-block for the BOJ in raising interest rates further.

"Ishiba's win would give the BOJ a freer hand as Ishiba, who doesn't appear to have a very strong view on monetary policy, will likely respect the central bank's decisions," said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute.

"With today's result, the influence of Abenomics will essentially disappear," Maeda said, predicting the next interest rate hike would come as early as December.

Takeshi Minami, chief economist at Norinchukin Research Institute, also said the victory of Ishiba would make it easier for the BOJ to normalize monetary policy.

"In terms of economic policy, Japan is bidding farewell to Abenomics," he said.

Ishiba is likely to announce a plan to compile a fresh stimulus package focusing on steps to curb food and fuel prices, which will be funded by a supplementary budget.

Under Governor Kazuo Ueda, who was appointed by Kishida, the BOJ exited negative rates in March and raised short-term borrowing costs to 0.25% in a landmark shift away from prolonged, radical monetary stimulus.

Ueda has said the BOJ will keep raising rates if inflation remains on track to stably hit 2% as it projects, though he stressed the bank will spend time gauging how global economic uncertainties affect Japan's fragile recovery.