Author: Jacques Quass de Vos
New Bank of Japan (BoJ) governor, Kazuo Ueda, might have his hands full after accepting what may be the most difficult task in contemporary central banking. Being the first academic instated as BoJ governor since the post-war era, it has been said that Ueda could lack necessary support from constituencies within the financial bureaucracy.[1][2]
Without the required endorsements, it will be an uphill effort to promote the policies needed to meet the bank’s objectives of sustainable inflation (2%) and financial sector stability.[3] At the same time, Governor Ueda must appeal to various interest groups. This includes Prime Minister Fumio Kishida’s agenda of increased defence budgets, startup promotion, and wealth redistribution.[2]
Ueda’s Career Leading Up to Governor Appointment
Mr. Ueda has a longstanding and successful career as an academic. The governor finished his Ph.D. thesis at the Massachusetts Institute of Technology (MIT) in 1980[4] under the supervision of Stanley Fischer, a giant in the central banking world.
For context, Mr. Fischer served as vice-chairman of the US Federal Reserve and supervised Ben Bernanke (Mr. Ueda’s classmate at MIT), who later became chairman of the Fed from 2006-2014. Mr. Fischer’s influence in modern monetary economics is unmatched.[5]
Mr. Ueda taught monetary economics and international finance at the prestigious University of Tokyo and became Dean of the Faculty of Economics.[6] Additionally, he taught at the University of British Colombia in Canada and Kyoritsu Women’s University in Tokyo.[7] Of note is his service on the BoJ’s policy board from 1998-2005.[4]
What Can We Expect From The New Governor?
Japan has been battling continual stagflation; unable to reach a sustainable 2% inflation rate. In an effort to stimulate inflation, the BoJ have tried to move the interest rates on its government bonds to just above or below zero.[8]
Converse to conventional beliefs, economists following Fischer’s teachings hold that interest rates of such a low level are counterproductive in raising inflation.[9] Paul Krugman and Ben Bernanke agree, pointing to something called the “liquidity trap.”[10][11]
If Mr. Fischer’s monetary ideology rubbed off on Governor Ueda, one could potentially decipher his next move. For instance, we could see some experimenting from Governor Ueda to hike rates. Two major events, however, show that it may take a while:
- Mr. Ueda’s historic vote against the popular poll that rates should not hike in August 2000 and calling the decision ‘premature’.[12]
- Now, shortly after Ueda’s appointment, the BoJ policy committee unanimously decided to leave rates unchanged, stating that it would be rash to abandon the dovish tone without gathering more data on wage growth and current inflation[13] (likely spurred by supply-side pressures).[14]
Therefore, one can see that Mr. Ueda is not afraid to move against the popular vote, but he is careful not to be overly hasty with his decisions. We may likely see cautious behaviour from the BoJ over the next year or two.
One thing is for certain: Governor Ueda sure has a good sense of humour:[15]
REFERENCES:
[1] ‘Ueda Becomes 1st Boj Governor from Academia in Postwar Japan.’ Nikkei Asia, April 9, 2023. Accessed June 13, 2023. https://asia.nikkei.com/Economy/Bank-of-Japan/Ueda-becomes-1st-BOJ-governor-from-academia-in-postwar-Japan.
[2]Sweeney, Pete. “Breakingviews – Japan’s next Central Bank Chief May Rue Promotion.” Reuters, February 13, 2023. Accessed June 13, 2023. https://www.reuters.com/breakingviews/japans-next-central-bank-chief-may-rue-promotion-2023-02-13/.
[3]Bank of Japan: Its Functions and Organization. Chuo City, Tokyo: Bank of Japan Public Relations Department, 2023. Accessed June 13, 2023. https://www.boj.or.jp/en/about/education/data/boj_pamphlet.pdf.
[4]“Factbox: Kazuo Ueda: Who Is the New Bank of Japan Governor and What Can We Expect from Him?” Reuters, February 10, 2023. Accessed June 13, 2023. https://www.reuters.com/markets/asia/kazuo-ueda-who-is-new-bank-japan-governor-what-can-we-expect-him-2023-02-10/.
[5]Wigglesworth, Robin. “Stan the Man.” Financial Times, February 13, 2023. Accessed June 13, 2023. https://www.ft.com/content/0990f3c9-b762-4c98-9eee-05f80410cced.
[6]“Ueda, Kazuo.” GraSPP: Profile of Kazuo UEDA. Accessed June 13, 2023. https://www.pp.u-tokyo.ac.jp/graspp-old/en/faculty/professors/ueda.htm.
[7]Gearoid Reidy and Daniel Moss | Bloomberg. “Analysis | Kazuo Ueda Is the First Surprise of the Post-Kuroda Era.” The Washington Post, February 10, 2023. https://www.washingtonpost.com/business/kazuo-ueda-is-the-first-surprise-of-the-post-kuroda-era/2023/02/10/c7998bfe-a930-11ed-b2a3-edb05ee0e313_story.html.
[8]De Vos, Jacques Quass. “Understanding the Last Three Decades of Japanese Fiscal Policy.” Stellenbosch University Japan Centre, June 10, 2023. Accessed June 13, 2023. https://www0.sun.ac.za/japancentre/2023/06/10/understanding-the-last-three-decades-of-japanese-fiscal-policy/.
[9]Amano, Robert, Thomas J. Carter, and Rhys R. Mendes. A primer on Neo-Fisherian economics. No. 2016-14. Bank of Canada, 2016. https://doi.org/10.34989/san-2016-14.
[10]Krugman, Paul R. “It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap.” Brookings Papers on Economic Activity 1998, no. 2 (1998): 137–187. https://doi.org/10.2307/2534694.
[11]Akram, Tanweer. “Japan’s Liquidity Trap.” SSRN Electronic Journal, 2016. https://doi.org/10.2139/ssrn.2753107.
[12]Robinson, Gwen. “Of Japanese Political Defeats and Rate Hike Speculation.” Financial Times, July 31, 2007. Accessed June 13, 2023. https://www.ft.com/content/87d3e992-ffa3-3ad0-8abc-b67bd543d1ff.
[13]Kihara, Leika. “Boj’s Ueda Vows to Keep Rates Low for Now, Signals Chance of Future Hike.” Reuters, April 25, 2023. Accessed June 13, 2023. https://www.reuters.com/markets/asia/bojs-ueda-ready-hike-rates-if-inflation-wages-overshoot-2023-04-25/.
[14]Khera , Purva, and Salih Fendoglu. “Uncertainty around Japan Inflation Underscores Need for Nimble Monetary Policy.” IMF, May 24, 2023. Accessed June 13, 2023. https://www.imf.org/en/News/Articles/2023/05/24/cf-uncertainty-around-japan-inflation-underscores-need-for-nimble-monetary-policy.
[15]Bloomberg Television, “BOJ’s Ueda Keeps Central Bankers Laughing in Sintra.” YouTube, June 30, 2023, Video. Accessed July 7, 2023. https://www.youtube.com/watch?v=DLGomU8iKBg&ab_channel=BloombergTelevision.