The headquarters of the Bank of Japan in Tokyo on February 14, 2023 (AFP/Yuichi YAMAZAKI)
Economics professor Kazuo Ueda, 71, was nominated on Tuesday by the Japanese government to become the next governor of the Bank of Japan (BoJ), a task that promises to be very difficult after ten years of an ultra-accommodating policy. .
The appointment of Mr. Ueda was announced in a government document sent to journalists in Parliament. The subsequent validation of this choice by parliamentarians is beyond doubt given the large majority of the ruling coalition in both chambers.
Mr. Ueda, whose term is due to begin in April, is a prominent academic who previously served on the BoJ’s monetary policy board from 1998 to 2005.
Described as cautious and thoughtful, but also a good communicator, he comes at a pivotal moment for the BoJ: its ultra-accommodative monetary policy in the global context of high inflation and rate hikes seems doomed, but unraveling it without causing too much damage promises to be extremely perilous.
According to the Nikkei newspaper, the government initially wanted to nominate the current BoJ deputy governor, Masayoshi Amamiya. But he would have refused the supreme post, considering himself ill-placed to re-examine a monetary policy of which he was one of the main architects.
Mr. Ueda will be supported by two new deputy governors: Shinichi Uchida, 60, current executive director of the BoJ, and Ryozo Himino, 62, former head of the Japan Financial Services Agency (FSA).
– A vestige of “Abenomics” –
In office in 2013, outgoing BoJ Governor Haruhiko Kuroda conducted an ultra-accommodating monetary policy with unconventional tools and dizzying asset purchase programs, mainly Japanese public debt securities.
The BoJ thus set to music the first arrow of “Abenomics”, the horse remedy advocated by the then Prime Minister, Shinzo Abe, to stimulate growth and overcome the deflation which had undermined the Japanese economy since the 1990s.
A passerby walks in front of the Bank of Japan headquarters in Tokyo on February 14, 2023 (AFP/Yuichi YAMAZAKI)
But the institution never achieved its objective of generating a 2% rise in prices in a stable manner, due in particular to structural problems in Japan such as the chronic weakness of salary increases and the country’s accelerated demographic decline, which handicaps his growth.
The rise in consumer prices has exceeded 2% since last year in the archipelago. But this inflation is essentially linked to the surge in global energy and food prices against the backdrop of the war in Ukraine, and therefore transitory, the BoJ estimates so far.
The institution has thus stuck to its guns, despite intense speculative pressure to force it to change course and the plunge of the yen last year due to the growing gap between its policy and the monetary tightening carried out in the United States and in Europe.
– “Time bomb” –
However, the BoJ eased off at the end of 2022, by raising the ceiling on ten-year Japanese bond yields that it tolerates. But this has only reinforced speculation about an upcoming normalization of its policy, even if the institution denies it.
“The longer (the BoJ) maintains its control of the yield curve – in a world of rising interest rates – the more severe the long-term consequences and the more difficult it will be to stage a ‘smooth’ pivot,” he said. warned Markets.com analyst Neil Wilson in a note in January, calling the situation a “ticking time bomb.”
A disorderly normalization of BoJ policy would not only cause a crisis in Japan, but “could also have far-reaching consequences” for global markets, Wilson said.
Mr. Ueda should therefore tread carefully on such a slippery slope. Especially since the BoJ is less independent of politics than the US Federal Reserve (Fed) or the European Central Bank (ECB).
If the Japanese economy fell into a severe recession and the Tokyo Stock Exchange fell sharply, “the risk would increase for Prime Minister Kishida to be forced to resign. Therefore, the government will not want an early monetary tightening of the BoJ”, estimated the economists of Crédit Agricole in a recent note.
And the Japanese state probably wants to continue to be able to borrow “stably” in view of the considerable expansion of its expenditure in the coming years, in particular to double its defense budget, also noted the firm of studies Oxford Economics.
© 2023 AFP
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