Japan’s new central bank governor, Kazuo Ueda, has assumed office amidst a challenging global economic environment. Ueda, a 71-year-old academic, succeeds Haruhiko Kuroda, whose five-year term ended on Saturday. His appointment comes at a time when the Japanese economy faces risks from slowing global growth and concerns over rising inflation and wages. Ueda has stressed the need to maintain an ultra-easy monetary policy to achieve the Bank of Japan’s 2% inflation target, backed by wage growth. However, with inflation exceeding the target, many analysts expect the Bank of Japan to tweak or end its yield curve control policy, which has drawn criticism for distorting markets and hurting bank margins.
While Ueda has not given any indication of his plans for monetary policy, markets are looking for clues on how soon he could phase out the unpopular bond yield control policy. His two deputy governors, Shinichi Uchida and Ryozo Himino, will hold a joint news conference on Monday, where they may provide some insights.
Japan’s long-stagnant inflation and wage growth are showing budding signs of change. However, there are concerns about the impact of rising raw material costs on consumer prices and household spending. Major firms have offered wage hikes of nearly 4% this year in annual labour talks, the fastest pace in about three decades, to compensate households for the increase in living costs.
Ueda will chair his first policy meeting on April 27-28, where the board will produce fresh quarterly growth and price forecasts extending through fiscal 2025. Markets are focusing on whether the board will project inflation accelerating towards, or even hitting, 2% inflation in fiscal 2024 and 2025. Under current forecasts, the Bank of Japan expects core consumer inflation to hit 1.6% in the current fiscal year that began in April and accelerate to 1.8% the following year.
In conclusion, Ueda’s tenure as the Bank of Japan’s governor is expected to be challenging, given the current global economic environment. With mounting risks to Japan’s export-reliant economy, it remains to be seen how he will navigate the delicate balance between achieving the Bank of Japan’s inflation target and maintaining a stable monetary policy that does not hurt the economy.
