Japan names university academic as next central bank governor | Business and economy

Economics professor Kazuo Ueda has been nominated as the next governor of the Bank of Japan (BOJ), tasked with moving forward after a decade of extraordinary monetary easing.

The respected economist, described as careful and cautious, was a surprise pick for the changing of the guard after the governor’s outgoing deputy reportedly turned down the job.

The position is likely to be difficult, with Ueda facing pressure to join international peers in tightening while avoiding panic by suddenly ending the bank’s decade-long monetary policy.

In another example of the problems facing Japan’s economy, data released Tuesday morning showed gross domestic product (GDP) grew just 0.2 percent in the final quarter of 2022, a smaller-than-expected jump despite the country’s long-awaited reopening for tourists.

Ueda was nominated by Prime Minister Fumio Kishida on Tuesday, according to a government document released to reporters, a decision that must be approved by lawmakers.

But it is expected to be mostly a formality given that Kishida’s ruling coalition has a healthy parliamentary majority.

A former member of the BOJ’s policy committee, Ueda will take over the reins from Governor Haruhiko Kuroda, the central bank’s longest-serving head and architect of its ultra-loose policy.

Since Kuroda became governor in 2013, his attempts to boost Japan’s ailing economy have ranged from negative interest rates to spending huge sums on government bonds.

It has remained firm over the past year, even as other central banks have raised rates to tackle inflation, with the resulting policy gap causing the yen to fall against the dollar.

Kuroda, 78, is scheduled to step down on April 8 when his second term expires.

He leaves Ueda, 71, with the challenge of working out the bank’s next steps, said Saori N Katada, a professor of international affairs at the University of Southern California.

“This is probably the hardest job at the worst time to take on. Professor Ueda is very brave to accept this,” she told the AFP news agency.

Japan’s easy money policy has become “extreme … and no one knows how to get out of it,” as sudden policy reversals could “endanger fiscal sustainability,” Katada said.

“Over the next five years, however, the BOJ must change course” because rising inflation, a weak yen and high government spending are unsustainable.

The yen fell from around 115 to the dollar in February 2022 to a three-decade low of 151 in October.

The Japanese currency has since recovered to around 132 to the dollar and briefly rallied when Japanese media first reported that Ueda would be nominated to replace Kuroda’s groomed deputy Masayoshi Amamiya.

Amamiya, who reportedly turned down the job, was seen as a continuity candidate likely to maintain the BOJ’s stimulus policy.

But that doesn’t mean Ueda – who earned a doctorate in economics from the Massachusetts Institute of Technology and served on the BOJ’s policy committee between 1998 and 2005 – should be viewed as a hawk, analysts say.

“The BOJ’s current policy is appropriate, and I think it is important to maintain the monetary easing policy for now,” Ueda told reporters on Friday.

Katada described him as “one of the most respected macroeconomists in Japan” and a good communicator who is “relatively cautious.”

Kazuo Momma, executive economist at Mizuho Research and Technologies and a former assistant governor at the central bank, told AFP that Ueda had “never been a hawk on the BOJ’s monetary policy”.

The bank’s ultra-loose monetary policy dates back to the era of former Prime Minister Shinzo Abe, whose “Abenomics” plan aimed to boost growth and stave off the deflation that plagued the Japanese economy since the end of the 1980s boom.

Inflation in Japan hit a multi-decade high of 4 percent in December — above the BOJ’s long-standing 2 percent target — fueled in part by huge energy bills.

But since the trend was not driven by demand or persistent wage increases, the BOJ said it saw no reason to abandon its policy.

So Ueda will “evaluate very carefully whether the 2 percent inflation target will be achieved over any reasonable time horizon and take a cautious stance in terms of possible policy changes going forward,” Momma said.

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