Can Ueda Leverage Know-How, International Connections?

The appointment of economist Kazuo Ueda as the Bank of Japan’s new governor has been officially approved. It is important for Ueda to make use of his expertise and experience in academia as well as extensive international connections in the central bank’s policy management.

The Diet has approved the government’s nomination of Ueda as BOJ governor and also its nominations of Ryozo Himino, a former commissioner of the Financial Services Agency, and Shinichi Uchida, a BOJ executive director, as deputy governors.

Ueda will be the first BOJ chief from academia. Specializing in international economics, he has served in such posts as a professor at the University of Tokyo. He is a leading Japanese researcher on monetary policy and was on the BOJ Policy Board for seven years from 1998.

Well-known overseas, Ueda reportedly has connections with figures such as former U.S. Federal Reserve Chair Ben Bernanke.

The Fed and other major central banks in developed countries have moved to raise interest rates in order to curb inflation, which has had a significant impact on global monetary policies.

It is hoped that Ueda will use his personal connections to facilitate communication and cooperation with foreign central banks.

During confirmation hearings in the Diet, Ueda said the current massive monetary easing policy is “appropriate” and stressed his intention to “create an economic environment that will enable companies to raise wages.”

Regarding a joint statement released by the government and the BOJ in 2013 that specified a 2% inflation target, Ueda said there would be no need to review the target immediately. Ueda believes that a rise in import costs is the main reason for soaring prices, which are not stable enough to bring about wage hikes.

His view that policy-backed support will continue to be necessary as the Japanese economy is still recovering from the coronavirus pandemic is understandable.

On the other hand, Ueda acknowledged that the prolonged period of massive monetary easing has produced “undeniable” side effects.

In addition to the deterioration of financial institutions’ earnings, problems attributed to the BOJ’s monetary policy include market distortions from the central bank’s massive purchases of government bonds and price surges triggered by increased import costs amid a depreciation of the yen.

It is crucial for Ueda to carefully scrutinize both the positive and negative effects of past policies from a new perspective. He should then manage policy measures flexibly.

It is also essential for the next BOJ chief to provide clear explanations to financial markets and gain their trust.

In December last year, when the BOJ allowed a wider range of fluctuations in long-term interest rates, which it usually guides to around 0%, the central bank said that the tweak was not an interest rate hike. This explanation caused a discrepancy in perception between the BOJ and the markets, which took it as an “effective rate hike.”

For the effects of monetary easing to permeate the markets, it is said to be important to gain the understanding of market players. Ueda is urged to make efforts to have dialogue with markets.

(From The Yomiuri Shimbun, March 11, 2023)