We May See bouts of Yen Outnumber Weakness Under Incoming BOJ Governor Ueda: Judging the Side Effects of Protracted Monetary Easing

Monetary Policy

We may see bouts of yen outnumber weakness under incoming BOJ governor Ueda: Judging the side effects of protracted monetary easing


By Naoki Murakami, Senior Economist, Asset Management One Co., Ltd.

On 14 February, the Japanese Government presented the appointment of Kazuo Ueda, Professor Emeritus of the University of Tokyo, as the next Governor of the Bank of Japan (BoJ) to the Diet, confirming his appointment.


Monetary policy change not likely in the immediate future Dr Ueda was never reported in the media as a candidate for the governorship and came as a surprise for financial market participants, including us. With the achievement of the bank’s 2 percent inflation target in sight in the final stage of the incumbent Governor Haruhiko Kuroda’s term, the question is how long the newly appointed executive board of the BoJ will maintain the current accommodative monetary policy and the yield curve control, targeting long term interest rate levels.
In a response to the media on 10 February, Dr Ueda expressed his view that the BoJ’s current policy is appropriate and that monetary easing should continue for the time being. In his July 2022 discussion paper, he also expressed the standard view that hasty tightening should be avoided amid rising inflation in Japan. Conscious of these statements, it is likely to be recognised that a major shift in monetary policy is not likely in the near term.
While recognising the effects of monetary easing, Dr Ueda may also be giving consideration to the side effects of the policy. For example, in his 2018 discussion paper, he pointed out the decline in the financial intermediation function of financial institutions due to a fall in revenues. However, several years have passed since then, and his recent thinking is not clear, with limited in-depth references to these side effects.

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