It is becoming abundantly evident that the position of head of Japan’s central bank comes with a number of significant obstacles when the prime minister of Japan announces his choice for the position.
The most recent statistics that have been made public by the government indicate that the economy is recovering from the pandemic at a significantly slower rate than was anticipated.
During the same period, costs are going up at a rate that is the quickest it has been in the past forty years and a half.
So what exactly can professor Kazuo Ueda do to help the economy that is currently the third largest in the world?
In the event that the Japanese parliament votes to choose Mr. Ueda as the next governor of the Bank of Japan (BOJ), he will have to contend with sluggish economic growth as well as the highest level of inflation seen since 1981.
The Japanese economy grew by 0.6% over the last three months of 2022, according to official numbers released on Tuesday. This result was far lower than the 2% expansion that had been anticipated.
Meanwhile, figures for December indicated that core consumer prices increased by 4% from the year before, which was twice the rate that the central bank had projected for inflation.
Experts are warning that the future governor of the Bank of Japan (BOJ) will have a difficult time successfully raising interest rates to combat inflation without negatively impacting the fragile economic growth that currently exists.
The soundness of the economy is not the primary cause for this phenomenon; rather, the primary reason is that prices in the country have been pushed up by foreign events, such as the war in Ukraine.
According to a statement that was given to the BBC by Stefan Angrick of Moody’s Analytics, “If you try to tighten policy to address the terrible inflation that Japan is witnessing right now, then runs the danger of setting you back in your own efforts to achieve good inflation,”
When investors heard that Japan’s Prime Minister Fumio Kishida would choose Mr. Ueda to replace Haruhiko Kuroda, who has been Governor of the Bank of Japan for the past ten years, they were surprised.
Even though he was educated in the academic field, Mr. Ueda has some prior experience working with the central bank. Between the years 1998 and 2005, he served on the policy board of the BOJ.
In 1999, he worked for the country’s central bank. At that time, the bank was trying to boost the economy by trying something different: lowering the cost of borrowing money to zero.
On the other hand, Mr. Ueda was not working for the BOJ during the time that it implemented its controversial policy of capping the interest rates that can be paid on government bonds.
Investors have been pushing the central bank to get rid of the “yield curve control” (YCC) policy, even though it doesn’t affect regular consumers directly. This is because investors have seen the returns on their investments decrease as a result of the program.
The financial markets were happy to hear about Mr. Ueda’s nomination the week before last because they thought he was more likely to change the policy than any of the other likely candidates.
Some people believe that Mr. Ueda is a pragmatic individual who will be able to adjust to the shifting economic landscape. This is despite the fact that the issues that the future governor of the BOJ will face may be daunting.
In an article about the topic, economist Jesper Koll was quoted as saying, “He is not a man of dogma, but of science. He is a smart, creative thinker who is not afraid to test his theories in the real world.”
“Because he is careful, doesn’t act on impulse, and doesn’t shoot from the hip, he will try to build an ideal, long-term policy framework instead of looking for big, quick wins.”