Economist Kazuo Ueda Set to be Named Next BOJ Chief

Prime Minister Fumio Kishida told ruling party officials on February 10 that he plans to nominate Kazuo Ueda as the new governor of the Bank of Japan (BOJ). He would be succeeding long-serving governor Haruhiko Kuroda.

Ueda is an economist and former member of the BOJ's Policy Board. He is expected to take over from Kuroda when the latter's current term expires on April 8. Ueda will become the first professional economist to serve in the post during the postwar era.

Slated to be named as vice governors are Ryozo Himino, a former commissioner of the Financial Services Agency (FSA), and Shinichi Uchida, who is currently a BOJ board member. The government will nominate the three to the Diet on February 14. It will formally appoint them after both houses of that body approve the choices.

Top BOJ officials normally serve for five years, but Kuroda has been in office for roughly a decade. Japan's monetary policy appears to have now reached a turning point. The extraordinary monetary easing that Kuroda has doggedly pursued is a pillar of Abenomics. This is an unconventional package of economic policies devised by former prime minister Shinzo Abe to jump-start the Japanese economy.

This ultraloose monetary approach has resulted in higher corporate profits and rising stock prices. However, observers also point to adverse effects such as the sharp depreciation of the yen and high prices for commodities. Drawing up an "exit strategy" will be one of the major challenges Ueda must face.

BOJ — Kazuo Ueda (right) attends a symposium prior to the opening of the G7 Finance Ministers and Central Bank Governors Meeting in May 2016 in Sendai. At left is Bank of Japan Governor Haruhiko Kuroda. (© Kyodo).

Why Ueda?

Ueda's research has focused on monetary policy. He taught at Tokyo University before joining the BOJ's Policy Board in 1998. He served in that body for seven years until 2005. During his tenure on the board, Ueda played a role in supporting monetary policy from a theoretical perspective. He was also well known for his proactive stance on monetary easing.

This will be the first time that someone other than an alumnus of the Bank of Japan or the Ministry of Finance serves as BOJ chief since Makoto Usami (formerly of the Mitsubishi Bank) did so in 1969.

During the August 8 session of the Budget Committee of the House of Representatives, PM Kishida explained his choice for the new BOJ governor as follows. "The abilities to cooperate closely with the top central bankers of major nations and to transmit and receive high-quality information with domestic and foreign market participants are becoming significantly more important."

Vice Governors Candidates

Vice governor candidate Himino has long been involved with the creation of international financial regulations and related activities. That means he has many ties to foreign financial authorities and institutions. Uchida has been working at the BOJ, mainly in the Planning Department, which is responsible for formulating monetary policy. In addition, he has been in charge of practical operations during Kuroda's time in office.

The new governor and vice governors are expected to take office on April 9 and March 20 respectively. The term of office for all three will be five years. The terms for the current vice governors, Masayoshi Amamiya, a BOJ veteran, and Masazumi Wakatabe, who was a professor at Waseda University before moving to the Bank of Japan, will expire on March 19.

The government will present the nominations to the directors of the House Steering Committee of both houses of the Diet on March 14. A hearing will then be held on March 24 to sound out Ueda's views on monetary policy management. The Kishida administration hopes that his nomination will receive quick approval.

Ueda Negative Toward Early Monetary Tightening

Kishida chose Ueda because he judged it best, even amidst global inflation, to maintain for the time being the "extraordinary monetary easing" introduced under Abe, while at the same time incrementally edging towards an exit strategy.

Ueda is said to be opposed to hasty monetary tightening. Kishida also is attuned to the opinion of the Abe faction within the ruling Liberal Democratic Party (LDP). The faction has been calling for keeping monetary easing in place.

Early this month when his choice for the new BOJ governor was more or less decided upon, Kishida indicated to those around him that his intentions would become self-evident with the announcement of that candidate.

The leaders at the BOJ are sometimes referred to as the "watchdogs of prices." Their policies will be sure to affect the course of the "new capitalism" program espoused by Kishida. The prime minister has been carefully mulling the choice since late last year, saying, "It has to be someone who can engage in dialogue with the market."

However, the BOJ now must decide whether to continue the monetary easing steadfastly pursued under Kuroda or ditch it. There had been speculation that in order to maintain a certain level of continuity, Masayoshi Amamiya, the current deputy governor and staunch supporter of Kuroda, or Hiroshi Nakaso, a former deputy governor, might be tapped to be the new governor. However, according to sources familiar with the situation, both were reluctant to accept the position. As a result, Kishida then began considering Ueda.

*Kazuo Ueda interviewed by reporters on February 10 in Shinjuku Ward, Tokyo (© Kyodo).*

Attuned to Abe Faction Policy Position

The BOJ personnel decisions were also impacted by LDP intra-party considerations. When making his BOJ governor decision, Kishida had to consider the Abe faction, the largest faction of the LDP. It is strongly concerned that the government will divert from Abenomics policies, of which monetary easing is a key pillar. In fact, some faction leaders indicated that they might turn on the prime minister. They said that they would "be forced to stand up" if he chose a candidate for governor who would modify the accommodative monetary policy.

Factoring in the situation with the Abe faction, Ueda was considered a good choice. He is well versed in monetary policy, having been involved in the introduction of the "quantitative easing measures" as a member of the BOJ's Policy Board, and is also negative about raising interest rates in the immediate future. The choice was designed to signal to both the market and the LDP that there would be no sharp deviation from the Kuroda line.

Nonetheless, observers point out that extraordinary monetary easing measures have already been in effect for a decade and have produced harmful side effects such as distortions in the market. Therefore, eventually, Japan will have to find an exit strategy.

The Kishida-Ueda team will now have to face a difficult "post-Abe/Kuroda era."

(Read the article in Japanese.)

Author: Shingo Nagahara