Choice for Seeking Exit

The main reason must be a frustration with Abenomics. As some reports indicated, Prime Minister Fumio Kishida was thinking that Japan’s monetary easing policy should be corrected. Kishida Cabinet last week submitted to the Diet a proposal of the nomination of Kazuo Ueda, Professor of Kyoritsu Women's University, for the successor of the Governor of Bank of Japan, Haruhiko Kuroda, whose term would end in early April. Ueda's mission is more than obvious: How to get rid of the rigid large-scale monetary easing policy of the bank.

The pick of Ueda was reportedly an original idea of Kishida. In the discussion of the Diet, Kishida suggested that the next governor should be someone who had connections with the central bank leaders in the world and capabilities of sending and receiving messages with the market. In the Massachusetts Institute of Technology, Ueda's mentor in economics was Stanley Fischer, and Ben Bernanke, Janet Yellen, or Mario Draghi was Ueda's peers then. Kishida seems to be believing that Ueda can join "the inner circle" of the international monetary community by using that relationship.

 

Before announcing the name of the pick, Kishida consulted with Taro Aso and Toshimitsu Motegi, the vice-president and the secretary general of Liberal Democratic Party. One of the important points was whether Abe group in the party would accept Kishida's choice. For the lawmakers of Abe group, which still possessed influential power in various decision-makings, maintenance of Abenomics would be a crucial principle for their survival. Some of them warned Kishida administration that a wrong choice of BoJ governor might be causing political troubles. Kishida thought the pick of Ueda, who would uphold BoJ's monetary easing temporarily at least, could be accepted by the group.

 

It will be the first time for BoJ to have a governor from the academic society. Why not from inside BoJ ordinarily? The choice is understandable if it was to change the course. The likeliest name for the next governor had been Masayoshi Amamiya, current vice-governor of Boj. But, according to Nikkei, Amamiya dismissed the offer because he thought a member of the party concerned could not suit to make a proper review. To deal with the policy change in the contemporary economic environment in which traditional monetary policies are no longer viable, or in further complicated situation of the market, Kishida thought a new type of governor was needed.

 

The most expected mission for Ueda is to build an exit strategy up. Under the large-scale monetary easing policy by Kuroda, the amount of government bonds by BoJ has increased by four times, from ¥125 trillion in March 2013 to ¥583 trillion in January 2023, and the holding of ETF for supplying money to the market has swollen from ¥1.5 trillion to ¥36.9 trillion. Although the inflation in Japan has reached the goal of 2.0% price hike Kuroda BoJ set, it is far from the preferable situation in which the price would sustainably and stably be rising along with the increase of wages. Reviewing the accord between BoJ and Japanese government of 2013, that both would plan to achieve 2% inflation as soon as possible, must be unavoidable.

 

Getting rid of the policy called yield curb control should be another difficult subject. BoJ introduced the policy in 2016 to maintain the long-term interest rate at a low level. The bank kept on purchasing government bonds to hold the long-term interest rate under 0.25% from 2021. However, the current situation cannot be said as stable. When BoJ announced in December 2022 that it would lift the limit of the long-term interest rate from 0.25% to 0.5%, the rate immediately rose with speculation about the interest rate hike. BoJ marked a new monthly record of the purchase of government bonds in January.

 

At the time his nomination was reported, Ueda insisted to the news reporters that the current BoJ policy was right so far. But the overwhelming expectation in Japan is to back this decade-long notorious Abenomics to the normal, when the people are suffering from the extraordinary high price of food, energy, or everything else. It will be tested whether Ueda can have appropriate dialogues not only with the market, the central bank leaders or a group in the leading party, but with the nation.