BOJ’s next chief: Monetary easing is appropriate

TOKYO

The Bank of Japan’s long-standing monetary easing policies are “appropriate,” its next governor Kazuo Ueda told parliament on Feb. 24, suggesting no sudden changes to the bank’s stance when he takes the helm in April.

Under current boss Karuhiko Kuroda, the bank has unleashed a raft of extraordinary ultra-loose policies, from a negative interest rate to spending vast sums on government bonds, in a bid to boost the sluggish economy.

It has stuck with these measures over the past year, despite pressure to join the U.S. Federal Reserve and other central banks in aggressively hiking interest rates to tackle soaring inflation.

Ueda, an economics professor, told lawmakers that he saw the “continuation of monetary easing as appropriate,” warning of high levels of uncertainty in financial markets and the global economy.

“It is necessary to keep monetary easing to support the economy and create an environment where companies can raise wages,” he said in his first public address since being nominated by Prime Minister Fumio Kishida.
His comments came as data on Feb. 24 showed consumer prices surged 4.2 percent last month, their fastest pace since September 1981 and more than double the bank’s two percent goal.

The figure was fueled in part by higher energy bills, while the contrast between Fed tightening and the BoJ’s easing has driven the yen down against the dollar, making foreign goods more expensive in Japan.

But because the price hikes are not driven by demand or steady wage increases the bank views them as temporary, and as such no reason to abandon its easing policies.

“These cost-push factors will likely ebb in the future, and inflation in consumer prices will likely drop below two percent towards the middle of the next fiscal year,” which runs from April 2023 to March 2024, Ueda said.

However, major Japanese companies including Toyota, Nintendo and Uniqlo parent Fast Retailing have recently announced substantial wage increases, a rarity in a country where pay has long been stagnant.

While Ueda gave no timeframe for any policy tweaks Friday, he did say that if the conditions for sustainable two percent inflation come into view, “then we will make a step toward normalization” of monetary policy.

The 71-year-old Ueda has a PhD in economics from the Massachusetts Institute of Technology and is seen as a good communicator who prefers cautious reflection over abrupt action.

The prime minister nominated him last week to replace Kuroda, who is stepping down after a decade in the job. Ueda is expected to be easily approved in parliament, where the ruling coalition commands a healthy majority.

He served on the BoJ’s policy board between 1998 and 2005 but faces a tough job as chair, with analysts calling the bank’s easy-money policies unsustainable in the long term.

“We believe that Ueda’s team will transform current policy framework eventually,” UBS economists Masamichi Adachi and Go Kurihara said in a note after the nomination.

“However, the timing and specific process are hard to predict, especially when the U.S. economy may slide into a recession.”