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New BOJ Governor Kazuo Ueda Breaks Tradition

Tonhis memoir Central Bank Officials are rarely bestsellers. Ueda Kazuo’s book “Fighting Zero Rates” recounts his experience serving on the Bank of Japan’s policy committee, certainly not when it was published in 2005.But after Mr Ueda unexpectedly emerged as a candidate, the book became a bestseller. Bank of Japan Current Governor Haruhiko Kuroda’s term ends in April. Mr. Ueda’s book is now sold out on Amazon Japan and other big booksellers.

The rush to parse Mr Ueda’s views reflected the unexpected nature of his choices, which the government presented to parliament on February 14. Investors had expected Vice President Masaka Amamiya to be picked and continue Kuroda’s dovish policy, which is coming under severe pressure. If approved, it seems certain that Mr Ueda would become the first academic economist to run the bank in postwar Japan, breaking with the tradition of a governor coming from Japan. Bank of Japan or Treasury. Many wondered whether Mr Ueda also represented a break with current policy. News of his pick sent the yen climbing and government bond yields higher as analysts scrambled to learn more. One US asset manager simply titled his research report “Who?”

Among experts, Mr. Ueda is regarded as an authority on macroeconomics. Former Treasury Secretary Lawrence Summers called him “Japan’s Ben Bernanke,” noting that he and the former Federal Reserve chairman had the same mentor at MIT: Stanley Fisher, who also taught ex-President Mali. Odraghi European Central Bank. In these circles, Mr Ueda is known as a balanced pragmatist, not a dogmatic hawk or dove.

In addition to Mr. Ueda’s academic qualifications, he also gained valuable experience from serving on the Policy Committee from 1998 to 2005. The period offers clues about how Mr Ueda handles the top job. He has been credited for bringing theoretical rigor and imagination to debate.At a meeting in 1998, at the Bank of Japan After gaining official independence, Mr Ueda came up with the idea of ​​so-called quantitative easing. Later, he helped push the bank to introduce forward guidance while adopting a zero interest rate policy. In August 2000, he also cast a rare dissent vote against raising interest rates, arguing that the cost of waiting longer to ensure a lasting recovery was lower than the cost of tightening policy too soon. “It takes a lot of guts,” said Morgan Stanley’s Robert Feldman mavge Securities, an investment company. His thinking proved prescient when Japan’s economy contracted later that year, forcing the bank to cut rates again.

this Bank of JapanThe current predicament bears some resemblance to these earlier junctures. Inflation has topped 4%, a 41-year high. However, most of this comes from imported food and energy prices. Under Haruhiko Kuroda, the bank argued that sustained wage growth was needed before changing its dovish course. Acting too soon could tip the economy into recession or deflation. But market pressures have made maintaining the bank’s policy of capping government bond yields expensive. Normalization seems inevitable—and difficult to manage. “It’s a thankless job,” notes Ulrike Schaede of the University of California, San Diego.When accepting a position, “look [Mr Ueda] Getting one for the team. ”

In an article last summer Nikkei, a newspaper, Mr Ueda warned of the risk of premature tightening. “This situation is reminiscent of Bank of JapanRate hikes in 2000 and 2006 did not last long,” he wrote. But he also called on the BOJ to have an exit strategy ready in case it were needed and to carefully examine the implications of Kuroda’s policies, noting that yields Negative effects of the curve control framework on the functioning of the market.

A cautious approach may conflict with the urgency of managing financial markets.this Bank of JapanIn recent weeks, the yield ceiling has come under unprecedented pressure. Sustaining the policy, originally introduced in 2016 to reduce the amount of bond purchases by the central bank, has recently required large purchases. The central bank’s holdings of Japanese government bonds rose by 20.7 trillion yen ($157 billion) from Dec. 30 to Feb. 10, more than double the pace of official 2016 purchases.

Despite the pressure, Mr Ueda is unlikely to move quickly.Shortly after word of his selection leaked, he told reporters he believed Bank of Japan Policy is right now. Even bond traders who have been betting on further adjustments in the yield curve control policy may be disappointed. As until recently an economist Kataoka Goushi Bank of Japan“Yield curve control will remain in place for now,” the policy committee predicts, suggesting a bumpy road for the central bank. At the very least, the next volume of Mr. Ueda’s memoirs is sure to be a good read.

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