Japan names academic Ueda as next central bank governor
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[February 14, 2023] By
Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) -Japan's government named academic Kazuo Ueda as its
pick to become next central bank governor, a surprise choice that could
heighten the chance of an end to its unpopular yield control policy.
Ueda, a 71-year-old former Bank of Japan (BOJ) policy board member, will
succeed incumbent Haruhiko Kuroda, whose second, five-year term ends on
April 8, according to documents presented to parliament on Tuesday.
The leadership transition marks a historical end to Kuroda's decade-long
monetary experiment that sought to shock the public out of a
deflationary mindset, and could eventually align Japan with other major
economies toward higher interest rates.
With inflation exceeding the BOJ's 2% target, Ueda faces the delicate
task of normalising its prolonged ultra-easy policy that has drawn
increasing public criticism for distorting market function and crushing
bank margins.
Analysts expect Ueda, who had warned of the dangers of premature
interest rate hikes in the past, to hold off on tightening monetary
policy.
But he may be more keen than his predecessor to roll back yield curve
control (YCC) - a complex framework combining negative short-term rates
with a 0.5% bond yield cap - given his past comments flagging its
potential flaws, analysts say.
"Ueda is likely to focus on theory and empirical analysis in guiding
monetary policy," said Naomi Muguruma, senior market economist at
Mitsubishi UFJ Morgan Stanley Securities.
"I don't think he will idly continue a policy that didn't work and
showing increasing side-effects," she said.
The appointment of Ueda, which was first reported by the Nikkei
newspaper and confirmed by Reuters on Friday, came as a surprise to many
investors who expected the job to go to a career central banker like
deputy governor Masayoshi Amamiya.
Ueda at the helm will make it easier for the BOJ to depart from current
stimulus than a choice like Amamiya, who played a key role in crafting
Kuroda's policies, analysts say.
"There's a possibility the BOJ will end its policy of capping the
10-year bond yield this spring or summer," said Izuru Kato, chief
economist at Totan Research.
"Once it removes the 10-year yield target, the BOJ could wait to see how
inflation and overseas economies develop in deciding when to exit
negative rates," he said.
The yen rose 0.46% to 131.82 per dollar on Tuesday and the 10-year
Japanese government bond (JGB) yield held at the top of the BOJ's 0.5%
cap. While investors see Ueda as less dovish than Amamiya, most of the
market reaction to his nomination took place when reports broke on
Friday.
FRAGILE RECOVERY
International markets have been closely watching Prime Minister Fumio
Kishida's choice of next BOJ governor for clues on how soon the bank
could phase out YCC.
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Kazuo Ueda, a former member of the BOJ's
policy board, is seen at the headquarters of Bank of Japan in Tokyo,
Japan May 25, 2022, in this photo taken by Kyodo. Kyodo via REUTERS
The government also nominated Ryozo Himino, former head of Japan's
banking watchdog, and BOJ executive Shinichi Uchida as deputy
governors, the documents showed.
They will replace incumbents Amamiya and Masazumi Wakatabe, whose
five-year terms end on March 19.
The nominations need the approval of both chambers of the Diet,
which is effectively a done deal since the ruling coalition holds
solid majorities in both chambers.
The nominees will testify at confirmation hearings later this month,
though the dates have not been formally decided.
Upon parliament's approval, Ueda will chair his first BOJ policy
meeting on April 27-28.
Chief Cabinet Secretary Hirokazu Matsuno said on Tuesday Ueda was an
"internationally prominent economist" and voiced hope the BOJ would
closely work with the government to spur growth.
Speaking to reporters near his residence in Tokyo, Ueda said he will
"do his best" if the appointment is approved by Diet.
A soft-spoken academic with a PhD from the Massachusetts Institute
of Technology, Ueda is seen as a pragmatist who can adjust his views
on monetary policy flexibly.
He takes the BOJ helm with inflation running at twice the central
bank's target, which has given investors an excuse to attack the
0.5% cap set on the 10-year bond yield.
In an opinion piece in the Nikkei last July, Ueda warned against
prematurely raising rates in response to inflation driven mostly by
cost-push factors.
But he also wrote the BOJ must eventually consider how to exit its
ultra-loose policy, pointing to the difficulty of maintaining the
yield cap when inflation perks up.
Some analysts say Japan's fragile recovery will complicate the path
toward an exit, after data showed the rebound in October-December
growth was weaker than expected.
"It might be hard for the BOJ to normalise ultra-easy policy this
year as overseas economies are slowing," said Takeshi Minami, chief
economist at Norinchukin Research Institute. "The BOJ may have to
wait until fiscal 2024 at the earliest."
(Reporting by Tetsushi Kajimoto and Leika Kihara; Additional
reporting by Eimi Yamamitsu and Satoshi Sugiyama; Editing by Sam
Holmes)
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