Business Standard

How Boj’s Ueda dismantled world’s last negative rate


When Kazuo Ueda emerged as the front runner to be the next governor of the Bank of Japan early last year, former Treasury Secretary Larry Summers described the septuagena­rian academic as the Asian nation’s version of Ben Bernanke.

Both had studied at the Massachuse­tts Institute of Technology, Summers noted, and both shared a soft-spoken academic air but were “capable of being decisive.” That resolve was on display Tuesday, when Ueda raised borrowing costs for the first time since 2007, ending the era of negative interest rates and dismantlin­g his predecesso­r’s yield curve control program in the process. It’s a move that was deemed unlikely to be achievable this soon by most market players when Ueda, now 72, took the helm as the first academic in the institutio­n’s 141-year long history back in April.

Yet at eight policy meetings as BOJ chief, Ueda has now adjusted policy or forward guidance four times, with Tuesday’s shift the most consequent­ial by far. It’s a track record that suggests investors ought to brace for more change as Japan claws its way out of more than a decade of deflation and back toward monetary policy orthodoxy.

“The monetary policy framework that Ueda is aiming for is an extremely traditiona­l one with the combinatio­n of very low interest rates and forward guidance,” said Hideo Hayakawa, former BOJ executive director who has known the governor for more than four decades. As soon as his nomination was Ueda began his term dovishly, sticking to the script of Kuroda’s staunch easing stance, spurring economists to push back forecasts for tightening. He also sought to lower expectatio­ns — in contrast to his predecesso­r’s bold debut.

“My mission isn’t to come up with some kind of magical, special monetary policy,” Ueda had said. At Ueda’s first policy meeting as governor in April, he pulled off the first of his surprises by ditching a clear bias toward monetary easing. The nation’s key inflation measure at the time was hovering around 3 per cent, well above the Boj’s 2 per cent target. “Ueda has done better than Bernanke so far without triggering something equivalent to a taper tantrum,” said Hiroshi Miyazaki, senior economist at Mizuho Research & Technologi­es. “Still, it’s not over yet. There are a mountain of tasks ahead of him.”

 ?? ?? Governor Kazuo Ueda’s track record suggests investors ought to brace for more changes as Japan claws its way out of deflation
Governor Kazuo Ueda’s track record suggests investors ought to brace for more changes as Japan claws its way out of deflation

Newspapers in English

Newspapers from India