TOKYO, March 21, 2024—On a cold February evening, Japan’s most prestigious private club was quiet as usual as a few small groups of mostly ex-Japaneses bureaucrats sat cozily in the bar chairs sipping cocktails and discussing global politics and economy almost inaudibly. Kazuo Ueda walked in to the premises flanked by his board members and instead of going to the bar, he was hastily ushered into a private dining room. Those accompanying him did not want people to come close to Ueda, let alone chat with him.
Ueda is not alone. He was joined by Federal Research chairman Jerome Powell on March 20, 2024.
Before he became the Bank of Japan governor, reportedly on his own will, on April 9, 2023, 72-year-old Ueda was known as a frequent visitor to Tokyo’s Ginza and Roppongi night life districts. After his 5-year central banker term began, he has been surrounded by dark-suited vice governors and advisors instead of night club hostesses.
Ueda announced on March 19, 2024 that the Japanese central bank was ending its negative short-term interest monetary policy for the first time since the bank took the policy in April 2013 as a means of shoring up the Japanese economy from deflation.
Over the intervening years, that translated into a weak yen against the U.S. dollar, euro and other currencies, and the impact has has been showing up in crawling goods prices, un-visible to casual eyes. After the Covid-19 pandemic erupted in 2020, the bank further relaxed monetary policy whole the government pumped trillions of yen to businesses in distress. And in 2023, businesses began raising wages by a few percentage points, and in 2024 doubled what they raised in 2023. By headline anecdotes, Japan’s consumer prices nearly doubled over the pst two years.
Compounding the price pressure, a massive influx of foreign tourists filled up hotels, restaurants, and other tourist spots, and the CPI upward trend gained impetus.Businesses and consumers say that Japan has entered a new round of inflation.
Against this backdrop, Ueda on March 19 made the announcement to to end the negative rate policy but he emphasized that the bank’s next policy move depends on whether CPI will continue above 2 percent sustainably and dismissed further tightening. Why is he so adamant about refusing to tighten further when taxpayers are complaining about rising goods and service prices? Ueda the scholar is surrounded by bureaucrats who prioritize inflation over price stability partly because a more visible interest rate rise requires additional issuance of Japanese government bonds. A one percent rate rise demands about 40 trillion yen (266 billion) fresh JGB issuance.
It’s the pressure Ueda is feeling from the Japanese bureaucracy, and on top of it, pressure from politicians to help sustain the spiraling stock market surge that rely on campaign finances and other forms of political money from big businesses at a time when the ruling party of prime minister kishida is being rocked by financial scandals and he may call for a general election.
It’s a similar election-related political pressure Fed Chairman Powell is feeling now, the reason why he said about three rate cuts this year. Political pressure is that powerful now that central bank independence is being eroded, almost replaced by policy to accommodate money rolling machines.
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