Kazuo Ueda was inaugurated as the new governor of the Bank of Japan on the 9th. Ahead of his inauguration press conference on the 10th, the market is paying attention to when he will start revising the monetary easing. In the market, the theory of easing correction emerged from April to June of this year.
On the 10th, the Bank of Japan announced on its website that Governor Ueda would hold an inauguration press conference at 7:15 pm on the same day.
According to the Nihon Keizai Shimbun (Nikkei), Ueda plans to inherit the monetary easing policy that continued for about 10 years under the former president Haruhiko Kuroda, and respond to the side effects of prolonged easing. Attention is focusing on whether he will make a related comment at his inauguration press conference.
Ueda is the first private-sector governor since Makoto Usami, who took office in 1964. He is the first governor as an economist. Well-versed in both theory and practice, he is expected to lead financial policy by making use of his experience as a member of the Bank of Japan deliberation committee.
The most attention is focused on the revision of the monetary easing policy and the exit strategy.
In February of this year, Governor Ueda attended the parliamentary petition (hearing) as a candidate for governor and expressed his intention to continue the easing policy, saying, “We will continue the financial easing and arrange an environment in which companies can raise wages.”
However, regarding the long-term and short-term interest rate manipulation (YCC, bond yield curve control), he acknowledged the side effects and euphemistically expressed his intention to revise it, saying, “It is not that we are not thinking about which method to review.”
Therefore, the newspaper reported that plans to abolish short- and long-term interest rate manipulation, expand the allowable range of long-term interest rate fluctuations, which are currently 0.5%, or reduce the period of manipulation from 10-year Treasury bonds to 5-year and 2-year Treasury bonds, are being discussed.
In particular, the observation that the easing policy will be revised early has emerged in the market.
Nikkei-subsidiary financial information companies QUICK and Nikkei Veritas surveyed foreign exchange market officials, including business corporations and financial institution officials, on the outlook for the timing of financial policy revisions from the 6th to the 8th of last month. Of the 75 respondents, about half said that it would be revised at a monetary policy meeting in April or June.
The Bank of Japan is set to hold monetary policy decision meetings on April 27-28 and June 15-16. The meeting on the 27th and 28th of this month is the first financial policy decision meeting by Ueda.
However, with the spread of financial instability from the US and Europe, the environment for the start of easing correction has become difficult. This is because of events such as the bankruptcy of Silicon Valley Bank (SVB) in the United States and the acquisition of Credit Suisse by UBS.
Former Governor Kuroda emphasized at a press conference on the 7th of his retirement that financial instability in the United States and other countries “will not spread to Japan.” However, while the US and other countries continue to raise interest rates, the embers of anxiety still remain in Japan.
Accordingly, the newspaper reported that at the current meeting in April, there were fewer voices predicting a revision of the mitigation, and in fact, there are many views that it will be after June.
Takahide Kikuchi, Executive Economist at Nomura Research Institute, said, “If the policy is implemented without communicating the possibility and intention of amendment at all (to the market), it would go against President Ueda’s policy of placing importance on explaining the market. ”he said.
It is pointed out that if Governor Ueda implements a mitigation correction, there will be an appropriate explanation for the market in advance. It is an analysis that puts weight on the June mitigation revision theory.
A total of four people who served as governors under the New Bank of Japan Law, which came into force in 1998, all decided to change policies early after taking office.
In March 2003, Toshihiko Fukui, five days after taking office as governor, decided to increase the cap on purchases of bank stocks by 1 trillion yen. In March 2013, after taking office, former Governor Kuroda announced two-dimensional easing, the key to which is massive government bond purchases. Shirakawa Masaaki (白川方明) seven months after taking office, Hayami Masaru (速水優) made the decision to cut interest rates after six months in office.
However, these four decisions were all ‘pigeonist’ responses to expanding monetary easing. Jeong Jae-gye accepted it positively.
Ueda must make a ‘hawkish’ policy decision to revise the mitigation policy. There are many more obstacles to making a decision. The Nikkei predicted that Ueda would look for a time for correction while keeping an eye on financial system instability and politics, as well as changes in the US interest rate hike phase.
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.