April 13, 2024

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

It is evident that the position will provide some significant hurdles as the prime minister of Japan announces his choice for the post of president of the nation’s central bank.

According to the most recent government statistics, the economy is rebounding from the epidemic far more slowly than was anticipated.

Costs are increasing at their quickest rate in much more than four decades at the same time.

What therefore can Professor 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 president, will have to deal with both sluggish economic growth and the highest prices since 1981.

Actual statistics released on Tuesday for the final three months of 2022 revealed that Japan’s economy was growing by 0.6%, significantly less than the 2% development anticipated.

“Core consumer prices” increased by 4% from a year earlier in December, above the central bank’s goal rate by two percentage points.

The next BOJ president will likely struggle to boost interest rates to combat inflation without undermining the nation’s weak economic development, according to experts.

The fundamental cause of this is that, instead of the country’s robust economy, expenses have been driven higher by outside forces like the conflict in Ukraine.

Investors were taken aback when news broke last week that Japan’s PM, Fumio Kishida, would recommend Mr. Ueda to succeed Haruhiko Kuroda, who has held the position for 10 years.

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

In an effort to stimulate the nation’s economy, the “Central Bank” adopted the novel strategy of lowering borrowing costs to zero in 1999, while he was working there.

Mr. Ueda wasn’t there at the BOJ, though, when that organization’s divisive policy of capping borrowing costs on Treasury securities was put into effect.

While the “yield curve control (YCC)” policy has a minimal direct influence on mainstream consumers, traders have been putting pressure on the central bank to abandon it as their returns on capital have been declining.

Stock markets cheered news of Mr. Ueda’s candidature last week because they believed he had a better chance than the other contenders of repealing the program. Despite the enormous problems that the incoming president of the BOJ will meet, Mr. Ueda is regarded by some as a pragmatic leader who will be able to adjust to the shifting economic environment.