Can the new governor of the Bank of Japan revive the economy

Kazuo Ueda speaks to media in Tokyo, Japan 10 February , 2023, in this photo taken by Kyodo

It is evident that the position will present some significant challenges as the prime minister of Japan announces his choice for the position of head of the nation's central bank.

According to the most recent government statistics, the economy is recovering from the pandemic much more slowly than was anticipated.

Prices are rising at their fastest rate in more than 40 years at the same time.

What then can the academic Kazuo Ueda do to improve the third-largest economy in the world?

Mr. Ueda, if elected by the nation's parliament to serve as the Bank of Japan's (BOJ) next governor, will have to deal with both sluggish economic growth and the highest inflation since 1981.

According to official data released on Tuesday for the final three months of 2022, Japan's economy grew by 0.6%, significantly less than anticipated growth of 2%.

Core consumer prices increased by 4% from a year earlier in December, exceeding the central bank's target rate of 2%.

The next BOJ governor will likely struggle to raise interest rates to combat inflation without undermining the nation's fragile economic growth, according to experts.

The main cause of this is that, rather than the country's robust economy, prices have been driven higher by outside forces like the conflict in Ukraine.

According to Stefan Angrick of Moody's Analytics, "if you try to tighten policy to address the bad inflation that Japan is currently experiencing, that runs the risk of setting you back in your own efforts to generate good inflation.".

Investors were taken aback when news broke last week that Japan's Prime Minister Fumio Kishida would propose Mr. Ueda to succeed Haruhiko Kuroda, who has held the position for ten years.

Despite having a background in academia, Mr. Ueda is familiar with the central bank. He served on the BOJ policy board from 1998 to 2005.

In an effort to stimulate the nation's economy, the central bank adopted the novel policy of lowering borrowing costs to zero in 1999 while he was working there.

Mr. Ueda wasn't present at the BOJ, though, when that organization's divisive policy of capping interest rates on government bonds was put into effect.

While the yield curve control (YCC) policy has little direct impact on average consumers, investors have been putting pressure on the central bank to abandon it as their returns on investments have been declining.

Financial markets welcomed news of Mr. Ueda's nomination last week because they believed he had a better chance than the other candidates of repealing the policy.

Despite the daunting challenges that the incoming governor of the BOJ will face, Mr. Ueda is regarded by some as a pragmatic leader who will be able to adjust to the shifting economic environment.

In a report, economist Jesper Koll said, "He is not a man of dogma, but one of science; a deep and creative thinker who is not afraid to test his hypothesis in the real world.".

"He is deliberate, he does not act impulsively, and he will be trying to design an ideal sustainable policy framework rather than trying to find big, immediate victories.

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