Japan’s government has named academic Kazuo Ueda as its pick to become the next central bank governor, which could heighten the chance of an end to its unpopular yield control policy. Ueda, a 71-year-old former Bank of Japan (BOJ) policy board member, will succeed incumbent Haruhiko Kuroda, whose second, five-year term ends on April 8.
The leadership transition marks a historical end to Kuroda’s decade-long monetary experiment that sought to shock the public out of a deflationary mindset, and could eventually align Japan with other major economies toward higher interest rates. With inflation exceeding the BOJ’s 2 percent target, Ueda faces the delicate task of normalizing its prolonged ultra-easy policy that has drawn increasing public criticism for distorting market function and crushing bank margins.
Analysts expect Ueda, who had warned of the dangers of premature interest rate hikes in the past, to hold off on tightening monetary policy. But he may be more keen than his predecessor to roll back yield curve control (YCC)—a complex framework combining negative short-term rates with a 0.5 percent bond yield cap—given his past comments flagging its potential flaws.
The appointment of Ueda came as a surprise to many investors who expected the job to go to a career central banker like deputy governor Masayoshi Amamiya. Ueda at the helm will make it easier for the BOJ to depart from current stimulus than a choice like Amamiya, who played a key role in crafting Kuroda’s policies, analysts say.
International markets have been closely watching Prime Minister Fumio Kishida’s choice of next BOJ governor for clues on how soon the bank could phase out YCC. The government also nominated Ryozo Himino, former head of Japan’s banking watchdog, and BOJ executive Shinichi Uchida as deputy governors, the documents showed.
Upon parliament’s approval, Ueda will chair his first BOJ policy meeting on April 27–28. Chief Cabinet Secretary Hirokazu Matsuno said on Tuesday Ueda was an “internationally prominent economist” and voiced hope the BOJ would closely work with the government to spur growth.
A soft-spoken academic with a PhD from the Massachusetts Institute of Technology, Ueda is seen as a pragmatist who can adjust his views on monetary policy flexibly. He takes the BOJ helm with inflation running at twice the central bank’s target, which has given investors an excuse to attack the 0.5 percent cap set on the 10-year bond yield.
Some analysts say Japan’s fragile recovery will complicate the path toward an exit, after data showed the rebound in October-December growth was weaker than expected. It might be hard for the BOJ to normalize ultra-easy policy this year as overseas economies are slowing,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “The BOJ may have to wait until fiscal 2024 at the earliest.”
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