Advertisement
Japan
OpinionComment
Yoshihiro Sakai
Yoshihiro Sakai

The View | New BOJ governor’s No 1 challenge is to ensure its policy benefits the Japanese people

  • Kazuo Ueda, an academic and an economist, can expect alien territory, and a very tough job trying to shift Japan out of its long-held zero-rate policy
  • Most importantly, he must ensure any policy changes are good for the people

Reading Time:3 minutes
Why you can trust SCMP
People walk on a street in Koto district as it snows in Tokyo on February 10. Since 2020, Japan’s economy has been hit by Covid-19, while the war in Ukraine has driven up prices globally and in Japan. Photo: AFP
Yoshihiro Sakai

In a break with tradition, the next governor of the powerful Bank of Japan (BOJ) is an economics professor. Kazuo Ueda, nominated last week by Japanese Prime Minister Fumio Kishida as the next BOJ governor, will be an exception after a line of predecessors who have customarily been long-serving finance ministry bureaucrats or central bank officials.

Advertisement
Ueda, however, has BOJ experience, having been a member of the central bank’s policy board from 1998-2005. Many BOJ watchers and economists expect Ueda to end Japan’s long-held ultra-easy monetary policy – outgoing governor Haruhiko Kuroda’s legacy – so as to revitalise the economy.
But unwinding the policy is a challenge and a double-edged sword. Raising the interest rate may put a lid on rising inflation – but it also risks a sharp drop in the price of government bonds.
The BOJ’s bold experiment in monetary easing goes back decades. But it was with the 2012 election of Shinzo Abe, Japan’s longest-serving prime minister, that an ultra-easy monetary policy became an important “arrow” in the national strategy. The revival plan, dubbed Abenomics, included two other arrows: agile government spending and structural reforms.

Since 2012, the Nikkei index has more than doubled in value, the yen has eased by more than 60 per cent against the dollar, and unemployment has shrunk to 2.6 per cent, from 4.3 per cent. But critics see the plan as having boosted the assets of high-net-worth individuals while having little positive effect on ordinary Japanese.

Advertisement

Macroeconomic data has been less than encouraging since the government increased the consumption tax, first in April 2014 to 8 per cent from 5 per cent, then to 10 per cent in October 2019. The gross domestic product, trade deficit, BOJ’s Tankan survey of business conditions and other economic markers have also worsened. But this may have been the result of fiscal policy mistakes, rather than BOJ policy.

Advertisement