TOKYO, Feb. 11, 2023—On Feb. 10, Kazuo Ueda, a scholar and former Bank of Japan policy board member, said he had accepted to succeed the outgoing central bank governor Haruhiko Kuroda. The Japanese and foreign media reported that the appointment was a total surprise and that Ueda would continue the current virtual zero interest rate monetary policy. The media miserably missed the point: Ueda was chosen as the first scholar as post-World War II period central banker not for his competence, which he has much, but because the Japanese government, a.k.a., the Ministry of Finance, and the BOJ do not want to be held responsible for the bank’s 10-year-long lax monetary policy that was formed on it by the late prime minister Shinzo Abe.
Ueda was chosen after Masayoshi Amemiya, current voce BOJ governor who has been in the bank since his graduation from school, refused to accept. Amemiya clearly thought that if he accepted the post, the BOJ would be in a double-whammy situation: blamed if it prolongs the ignominious zero rate policy or ends the policy or raises rates aggressively, which would sharply increase the cost of refunding Japan’s 1,000 trillion yen government debt and spark a financial chaos, such as commercial bank losses on their Japanese government bond (JGB) holdings.
But grade school students know that the present BOJ monetary policy to keep short-term interest rates near zero (it grudgingly raised the rate by 0.25% recently) is not sustainable. The Tokyo financial market has been abuzz with speculation that after Kuroda steps down on April 8, the bank would have to start tightening monetary policy more visibly and possibly aggressively in the face of soaring domestic inflation, which, by dubious government data, has been clicking nearly 10 percent while headline inflation is 20-30 percent year-on-year.
A primary reason why pressure on the bank to follow up on its ¼ point hike has been muted was for the U.S. dollar’s fall against the yen past its recent rise above 150 yen to the 130 yen level now. Yet domestic price rises are becoming difficult for the Japanese public to stomach as producers and retailers are poised for more hikes while the government is scheduled to reduce or cut off subsidies for essentials as it is scheduled to raise taxes for doubling Japan’s defense budget.
Ueda has been expressing opinions in favor of continuing the zero rate policy as well as opposite. Politicians and bureaucrats historically have been mobilizing academia as a convenient tool for their objectives with the view that scholars can be swayed easily with pressure. It’s the reason why most of Japanese government policy and study commissions are headed by university professors as chairs. I am hoping that Mr. Ueda registers the central bank’s ground rules as independent and free from government and outside influences.
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Insight Into the Future