The memories by central bank officials are rarely bestsellers. Ueda Kazuo’s book, Fighting Zero Interest Rates, about his time on the Bank of Japan’s policy board, certainly wasn’t when it was published in 2005. But it started flying off the shelves after Mr. Ueda became the surprise choice to run for Die boj when current Governor Kuroda Haruhiko’s term ends in April. Mr. Ueda’s book is now sold out at Amazon Japan and other major book retailers.
The rush to analyze Mr Ueda’s views reflects the unexpected nature of his selection, which the government presented to Parliament on February 14. Investors were expecting Amamiya Masayoshi, a deputy governor, to be selected and continue Mr Kuroda’s dovish approach, which is falling short heavy load. If approved, Mr. Ueda appears to be the first academic economist to head the bank in post-war Japan, breaking with tradition that the governor is of Japanese origin boj or Ministry of Finance. Many wondered whether Mr. Ueda could also represent a break with current politics. News of his selection sent the yen higher and government bond yields higher as analysts scramble to learn more. One American wealth manager simply captioned his research note, “Who?”
Under Wonks, Mr. Ueda is respected as a macroeconomic authority. Lawrence Summers, a former Treasury Secretary, dubbed him “Japan’s Ben Bernanke” and noted that he and the former Federal Reserve Chairman studied under the same tutor at the Massachusetts Institute of Technology: Stanley Fischer, who also tutored Mario Draghi, a former president the European central bank. In these circles, Mr. Ueda is known as a well-balanced pragmatist rather than a dogmatic hawk or dove.
In addition to Mr. Ueda’s academic credentials, his time on the Policy Board from 1998 to 2005 brings him valuable experience. This period offers clues as to how Mr. Ueda might handle the top job. He is credited with bringing both theoretical rigor and imagination to debates. During a meeting in 1998, shortly after boj gaining official independence, Mr. Ueda brought up the idea of what has come to be known as quantitative easing. He later helped persuade the bank to introduce forward guidance while maintaining a zero interest rate policy. He also gave a rare dissenting vote against a rate hike in August 2000, arguing that the cost of waiting longer for a durable recovery is less than that of tightening ahead of schedule. “It took a lot of courage,” says Robert Feldman of Morgan Stanley musty Securities, an investment firm. His thinking proved prescient when Japan’s economy contracted later that year, forcing the bank to cut interest rates again.
The bojThe current dilemma of has some similarities with these earlier incidents. Inflation has topped 4%, a 41-year high. However, most of it comes from imported food and energy prices. Under Mr Kuroda, the bank has argued that sustained wage growth is needed before deviating from its dovish course. A move too early could plunge the economy into recession or deflation. But market pressure has meant the bank’s policy of capping government bond yields has been maintained expensive. Normalization seems inevitable – and will be difficult to manage. “It’s a thankless job,” says Ulrike Schaede of the University of California, San Diego. Upon accepting the post, “It looks like this [Mr Ueda] takes one for the team.”
In an article last summer for Nikkei, a newspaper, Mr Ueda warned of the risks of tightening too soon. “This situation brings back memories of the bojThe rate hikes of 2000 and 2006 didn’t last very long,” he wrote. However, he also urged the bank to prepare an exit strategy for the coming day and undertake a serious review of the impact of Mr. Kuroda’s policies, noting the negative impact of the yield curve control framework on the functioning of the market.
A cautious approach can clash with the need for urgency in managing financial markets. The bojThe yield cap of has been subjected to unprecedented stress in recent weeks. Maintaining the policy, originally introduced in 2016 to reduce the number of bonds bought by the central bank, has recently required extremely large purchases. The central bank’s holdings of Japanese government bonds rose by 20.7 trillion yen ($157 billion) from December 30 to February 10, more than twice the rate of official purchases in 2016.
Despite the pressure, Mr Ueda is unlikely to act quickly. Shortly after news of his selection broke, he told reporters he believed in it boj politics are appropriate for now. Even bond traders who have been betting on further tweaks to yield curve control policy are likely to be disappointed. As Kataoka Goushi, an economist until recently on the Young‘s Policy Board forecast: “Yield curve control will remain in place for now.” This suggests the central bank is in for a bumpy ride. At least the next volume of Mr. Ueda’s memoirs will certainly be well read. ■
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