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Bank of Japan’s new governor, Kazuo Ueda, marks a break with tradition

T.he recalls central bankers are rarely bestsellers. The book Fighting Zero Interest Rates, which Kazuo Ueda wrote about his time working on the Policy Board of the Bank of Japan, certainly wasn’t when he was published in 2005.of Boji Current Governor Haruhiko Kuroda will end his term in April. Ueda’s book is currently sold out at Amazon Japan and other major bookstores.

Ueda’s hasty attempt to parse his views reflects the unexpected nature of his choice, which the government submitted to the Diet on Feb. 14. He was nominated and expected to continue Kuroda’s dovish approach. severe strainIf approved, as it seems certain, Ueda would become the first academic economist to run a bank in post-war Japan, breaking the tradition of having governors poached from the central bank. Boji Or the Ministry of Finance. Many thought Ueda represented a departure from current policies. News of his election sent the yen stronger and bond yields higher, prompting analysts to scramble to find out more. An American asset manager simply titled his research notes “Who?”

Among otaku, Ueda is revered as an authority on macroeconomics. Former Treasury Secretary Lawrence Summers called him “Japan’s Ben Bernanke” and noted that he and former Federal Reserve Chairman studied under the same tutor at the Massachusetts Institute of Technology. European Central Bank. In these circles, Mr. Ueda is known as a balanced pragmatist rather than a dogmatic hawk or pigeon.

In addition to his academic background, Mr. Ueda’s experience on the Policy Board from 1998 to 2005 has provided him with valuable experience. This period provides clues as to how Mr. Ueda handles top jobs. He is known for bringing both theoretical rigor and imagination to his arguments. During the 1998 conference, Boji Ueda put forward the idea that has come to be known as quantitative easing. He then pushed banks to introduce forward guidance while adopting a zero interest rate policy. He also voted against raising interest rates in August 2000, arguing that the cost of waiting longer to ensure a permanent recovery was less than the cost of premature tightening. . “It took a lot of guts,” says Morgan Stanley’s Robert Feldman. mafugu Securities and investment companies. His thinking was prescient when the Japanese economy contracted later that year and banks were forced to cut rates again.

of Boji‘s current dilemma bears some similarities to these early junctures. Inflation topped 4%, his highest level in 41 years. But mostly due to imported food and energy prices. Under Kuroda, the BOJ has insisted it needs sustained wage increases before changing its dovish line. Moving too quickly could send the economy into recession or deflation.But market pressure keeps banks’ policy of capping government bond yields in place. ExpensiveNormalization seems inevitable, but difficult to manage. Her Ulrike Schaede of the University of California, San Diego said:When I accept the post it says “It looks like [Mr Ueda] I have one for my team.

In an article from last summer Nikkeinewspaper, Ueda warned of the risk of premature tightening.”This situation brings back memories of those days. BojiThe rate hikes of 2000 and 2006 didn’t last very long,” he wrote. But he also called on banks to prepare exit strategies for when that day comes, to seriously review the impact of Mr. Kuroda’s policies, and pointed out the adverse effects of the yield curve control framework on market functioning. .

A cautious approach can clash with the need for urgency in managing financial markets.of Bojiyield caps have come under unprecedented stress in recent weeks. Significant purchases have recently been required to sustain the policy introduced in 2016 to reduce the number of bonds purchased by the central bank. The BOJ’s holdings of Japanese government bonds increased by 20.7 trillion yen ($157 billion) from Dec. 30 to Feb. 10, double the pace officials said he bought in 2016. That’s it.

Despite the pressure, Ueda won’t be able to move anytime soon. Shortly after the news of his choice leaked, he told reporters that he believes. Boji Good policy for now. Even bond traders who have bet on further adjustments to yield curve control policies are likely to be disappointed. Until recently, as economist Takeshi Kataoka, BojiThe US Policy Board predicts that yield curve control will be maintained for the foreseeable future. This suggests that central banks are in trouble. At the very least, the next volume of Mr. Ueda’s memoir should be well read.

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https://www.economist.com/finance-and-economics/2023/02/14/the-bank-of-japans-new-governor-ueda-kazuo-marks-a-break-with-tradition Bank of Japan’s new governor, Kazuo Ueda, marks a break with tradition

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