The next governor of the Bank of Japan (BoJ), Kazuo Ueda, advances his intention to maintain the ultra-flexible monetary policy of the entity despite the acceleration of inflation in the country, a position welcomed by the Tokyo Stock Exchange. Ueda, 71, has appeared this Friday for the first time in parliament in the framework of the approval process for his appointment and, although he acknowledged the pressure exerted by inflation (the Japanese CPI rose 4.2% in January), he has defended the central bank’s loose monetary policy to avoid a recession linked to its tightening.
“I believe that the BoJ’s current policy is adequate,” said Ueda, who said that the entity’s current measures are necessary to ensure that inflation is “sustainably and stable” around 2%, at the same time that a salary increase, although he recognized that for this “it is still necessary time”. Ueda has said he is aware that the BoJ’s ultra-loose measures, which include negative short-term interest rates (-0.1%) and yield curve control, “produce some side effects”, but are necessary to achieve his objectives. .
The academic, who served on the BoJ’s monetary policy board for nearly two decades, nonetheless pledged to analyze the pros and cons of the measures taken over the past 25 years and take the necessary steps based on economic developments. The Japanese central bank is facing increasing pressure from financial markets to change its monetary policy, given some of its pernicious side effects, such as distortions in bond markets.
When asked about the possibility of changing the current control strategy of the yield curve presented, for example, maturities of less than the current ten years, Ueda has specified that it is “an option” possible, although he avoided specifying measures in this regard, pointing out the existence of other tools that also deserve study. Both parliamentary chambers must approve the appointment of Ueda to assume the BoJ mandate after the term of his predecessor, Haruhiko Kuroda, expires on April 8.
Ueda’s first parliamentary appearance was especially relevant to financial markets, which are looking to his clues about the Japanese central bank’s policy direction in its first leadership change in a decade, to learn how he seeks to guide the bank in words. tumultuous road to normalization. Ueda’s comments were welcomed by investors on the Tokyo Stock Exchange, where its selective benchmark, the Nikkei, has risen 1.29%. The main Japanese financial market already opened higher, but it significantly expanded gains due to his appearance.
“When my appointment as BoJ Governor is approved, I will take the necessary steps by working closely with the government to create an economic structure that allows companies to raise wages continuously, not temporarily, while we watch the economy and prices move. and prices,” added Ueda. “Price stability is an important infrastructure. Guaranteeing it is the BoJ’s main function,” declared the Japanese, who insists, as Kuroda himself has been doing, that the current rise in prices in the country is due to rising prices of costs, and not to a strong internal desirable demand.
Inflation in Japan is at levels of 41 years ago and its rise is above the inflation target since April 2022, but the BoJ is reluctant to modify its monetary policy (except for an increase in the margin for bonds undertaken last December ) considering it to be the product of external and transitory factors.
Regarding the difficulties in the Japanese issuing entity to achieve its current inflation target, adopted in 2013 by his predecessor and still BoJ governor, Haruhiko Kuroda, Ueda has pointed out three factors that have obstructed its achievement. First, he cited external factors such as the global financial crisis unleashed by the bankruptcy of Lehman Brothers in 2008, which had a negative impact on financial intervention. In this scenario, the financial policy in the country had little room to innovate and to this during decades some wealthy consumers and companies joined in the prevailing deflation in the country.