Economy
Japan names university academic as next central bank governor
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Economics professor Kazuo Ueda has been nominated as the Bank of Japan’s (BOJ) next governor, tasked with navigating a way forward after a decade of extraordinary monetary easing.
The respected economist, described as careful and cautious, was a surprise pick for the change of guard after the outgoing governor’s deputy reportedly turned down the job.
The position will likely be tough going, with Ueda facing pressure to join international peers in tightening while avoiding panic by suddenly unwinding the bank’s decade-old monetary policy.
In another example of the headwinds facing Japan’s economy, data released Tuesday morning showed that gross domestic product (GDP) expanded just 0.2 percent in the last quarter of 2022, a smaller rebound than expected despite the long-awaited reopening of the country to tourists.
Ueda was nominated on Tuesday by Prime Minister Fumio Kishida, according to a government document handed to reporters, a decision that must be approved by legislators.
But that is expected to be largely a formality given that Kishida’s ruling coalition commands a healthy parliamentary majority.
A former BOJ policy board member, Ueda will take the reins from Governor Haruhiko Kuroda, the central bank’s longest-serving leader and the architect of its ultra-loose policies.
Since Kuroda became governor in 2013, his attempts to boost Japan’s moribund economy have ranged from a negative interest rate to spending vast sums on government bonds.
In the past year, he has held firm, even as other central banks hiked rates to tackle inflation, with the resulting policy gap causing the yen to slump against the dollar.
Kuroda, 78, is due to step down on April 8 when his second term ends.
He leaves Ueda, 71, the challenge of working out the bank’s next steps, said Saori N Katada, an international relations professor at the University of Southern California.
“This is probably the hardest job at the worst time to take up. Professor Ueda is very brave to accept it,” she told the AFP news agency.
Japan’s easy-money policies have become “extreme … and no one knows how to get out of it”, as sudden policy pivots could “jeopardise fiscal sustainability”, Katada said.
“In the next five years, though, the BOJ has to change course” because rising inflation, the weak yen and high government spending are unsustainable.
The yen tumbled from about 115 against the dollar in February 2022 to a three-decade low of 151 in October.
The Japanese currency has since recovered to about 132 against the dollar and briefly strengthened when Japanese media outlets first reported Ueda would be nominated instead of Kuroda’s dovish deputy Masayoshi Amamiya.
Amamiya, who reportedly turned down the job, had been seen as a continuity candidate likely to keep the BOJ’s stimulus policies.
But that does not mean Ueda — who has a PhD in economics from the Massachusetts Institute of Technology and served on the BOJ’s policy board between 1998 and 2005 — should be viewed as a hawk, analysts said.
“The current BOJ policy is appropriate, and I think it’s important to maintain 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 hawkish with regard to the BOJ’s monetary policy”.
The bank’s ultra-loose monetary policy dates to the era of former Prime Minister Shinzo Abe, whose “Abenomics” plan aimed to stimulate growth and banish the deflation that plagued Japan’s economy from the end of the 1980s boom.
Inflation hit a multi-decade high of 4 percent in Japan in December — above the BOJ’s longstanding 2-percent target — fuelled partly by soaring energy bills.
But because the trend has not been driven by demand or steady wage increases, the BOJ has said it sees no reason to abandon its dovish policies.
So Ueda “will assess very carefully whether the 2-percent inflation target will be achieved in any reasonable time horizon, and take a cautious position in terms of possible policy changes going forward”, Momma said.
The ‘poor borrower’ narrative rules in media coverage of the Bank of Canada and high interest rates, and that’s appropriate.
A lot of people have been financially slammed by the rate hikes of the past couple of years, which have made it much more expensive to carry a mortgage, lines of credit and other borrowing. The latest from the Bank of Canada suggests rate cuts will come as soon as this summer, which on the whole would be a welcome development. It’s not just borrowers who need relief – the boarder economy has slowed to a crawl because of high borrowing costs.
But high rates are also a big win for some people. Specifically, those who have little or no debt and who have a significant amount of money sitting in savings products and guaranteed investment certificates. The country’s most well-off people, in other words.
Lower rates will mean diminished returns for savers and less interest paid by borrowers. It’s a stretch to say lower rates will improve financial inequality, but they do add a little more fairness to our financial system.
Wealth inequality is often presented as the chasm between well-off people able to pay for houses, vehicles, trips and high-end restaurant meals and those who are driving record use of food banks and living in tent cities. High interest rates and inflation have given us more nuance in wealth inequality. People fortunate enough to have bought houses in recent years are staggering as they try to manage mortgage payments that have risen by hundreds of dollars a month. You can see their struggles in rising numbers of late payments and debt defaults.
Rates are expected to fall in a measured, gradual way, which means their impact on financial inequality won’t be an instant gamechanger. But if the Bank of Canada cuts 0.25 of a percentage point off the overnight rate in June and again in July, many borrowers will start noticing how much less interest they’re paying, and savers will find themselves earning less.
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