Quick thoughts on Ueda
Nikkei reports:
TOKYO -- The Japanese government plans to appoint Kazuo Ueda, an economist and former member of the BOJ Policy Board, as the central bank's next governor after Haruhiko Kuroda steps down, Nikkei has learned.
Ueda, an academic economist with an Economics Ph.D. from MIT, will be the first academic to helm the Bank of Japan during the postwar era, departing from the unwritten rule that has dictated that the leadership of the bank should pass between career BOJ officials and career MOF officials.
Ueda was a member of the bank’s policy board from 1998-2005, a period that coincided with the BOJ’s first experiments with quantitative easing and a zero-interest rate policy, during which time he was reportedly “the most dovish member” of the board. He was also involved in the Abe administration’s efforts to reform the Government Pension Investment Fund (GPIF), chairing the committee that studied GPIF governance reform. (He had previously served on its investment committee.)
Ueda’s appointment comes as a surprise, and apparently came only after Amamiya Masayoshi, the BOJ deputy governor who was widely viewed as the favorite to succeed outgoing governor Kuroda Haruhiko, turned down Prime Minister Kishida Fumio’s offer (suggesting that despite the denials there was something to Nikkei’s report earlier this week).
Meanwhile, the new deputy governors will be Himino Ryōzō and Uchida Shinichi. The former began his career as a financial regulator at the Ministry of Finance, moved over to the Financial Services Agency when it was created, and ended his career as commissioner of the FSA. He was also involved in negotiations for the Basel II banking standards. Uchida, like Amamiya before him, is currently the BOJ’s executive director responsible for monetary policy.
In general, the appointment of the moderately dovish Ueda as governor appears to signal that the BOJ will not be rushing to exit from its unconventional easing policies, as he told Nikkei in July 2022 that the bank should not be too hasty to raise interest rates. As a member of the policy board, for example, he argued against prematurely ending the bank’s zero-interest rate policy. Meanwhile, in an article in Nikkei in 2018 he offered almost a parody of classic economist “on the one hand, on the other hand” thinking, noting the many side effects of Kuroda’s easing policies but also arguing that with inflation still below target there was no choice but to maintain them.
Implications for Kishida
Ueda is undoubtedly a safe political choice for Kishida in the near term. His record of dovishness as a policy board member and his leadership of a GPIF reform advisory panel, an issue of no small importance for the Abe administration, suggests that Ueda will face little opposition from the LDP right, which may generally be satisfied with his cautious, go-slow approach to the normalization question. (Sankei’s reporting suggests this is the case.) Assuming that Ueda does not move quickly to modify or end yield curve control, it could delay a reckoning with rising debt-servicing costs and the broader question of how to pay for Kishida’s fairly expansive (and expensive) policy priorities. That said, in a 2016 roundtable in Nikkei, Ueda expressed concern that BOJ bond-buying could, by keeping interest rates low, suppress a sense of urgency among politicians about tackling Japan’s fiscal situation or even be creating a moral hazard.
At the same time, however, one gets the sense that Ueda has been tapped more as a caretaker than as the architect of a post-Kuroda regime at the BOJ. The report that Amamiya was in fact Kishida’s first choice but spurned the prime minister is curious. On Twitter, Okumura Jun suggested that Amamiya’s refusal is indicative of a broader institutional perspective in the BOJ that the post-Kuroda governorship is in fact a poisoned chalice, and so it would be better for the BOJ to skip its “turn” in the BOJ-MOF alternation to avoid being the scapegoat for what could be a messy few years for Japanese monetary policy.
Similarly, I wonder whether Ueda might find himself as a man without a constituency. Neither BOJ nor MOF career staff, the second choice of a prime minister whose political prospects aren’t great, apparently acceptable to the LDP’s largest faction and ideological tendency but not necessarily their first choice, it is easy to imagine any of these actors turning against him depending on how he manages the balancing act awaiting the next governor. It is unclear how much or what manner of independence the BOJ can be expected to have given these circumstances. The markets meanwhile will have their own say about the sustainability of a go-slow approach after Ueda takes over.
In short, Kishida has dodged an open fight over macroeconomic policy in the immediate term by selecting someone whose temperament and intellectual inclinations appear to match his own, but who now has the unenviable task of navigating the BOJ into an uncertain future.
Great stuff!