What Kazuo Ueda’s past says about the BOJ’s future


For all the enormous consequences of their actions, central bankers often make decisions in gray guise. While interest rate call disagreements are not uncommon—and can turn skeptics into heroes if things don’t go well—those in the minority are typically not major league rebels. This makes it hard to guess what people will do if they graduate from the corner suite: conditions prevailing at the time matter more than philosophy. Japan can become a powerful display of this.

When news spread through markets on Friday that Kazuo Ueda was to succeed Haruhiko Kuroda as head of the Bank of Japan, investors didn’t have much to do. (His appointment was officially announced on Tuesday.) Some narratives have latched on to his academic background and compared him to Ben Bernanke, who headed the Federal Reserve from 2006 to 2014 and propelled America into the world of Japanese-style easy money. More interesting, however, might be a closer look at Ueda’s time on the BOJ’s policy board a few decades ago. Specifically, his thoughts on the bank’s mistake in August 2000, when the BOJ raised its benchmark rate and Ueda voted “No.” (Another colleague, Nobuyuki Nakahara, also broke with the majority.)

In hindsight, it looks like a great decision by Ueda. That rally came just as the world was about to enter a downturn that forced the BOJ to make a humiliating withdrawal the following year. But a reading of the bank’s deliberations at the end of that fateful summer does not suggest that Ueda had a radically different perspective. He just thought there was no rush to raise borrowing costs. Critically, he thought the costs of delaying would be small. Wouldn’t it be better to see if the encouraging but still modest rise in prices had staying power?

Here is how the minutes recorded their thinking on preferring the zero-fee status quo: “First, it would be desirable to look at stock market developments for some time longer. Second, the optimal interest rate has finally reached a level around zero, but it would be desirable to wait for the rate to clearly rise above zero. And third, judging from inflation trends, the cost of waiting would be negligible. He added that his view of the economic situation did not significantly differ from that of other members.”

The parallels with the current debate over Japanese monetary policy are hard to ignore. As then, many are now urging the BOJ to rush out and join the rest of the world in “normal” politics, even as many worry that the bank’s job is not even half done. In 2000, the eagerness to get out of what was considered an abnormal policy turned to impatience, and only resulted in two more decades in which rates were often zero or lower.

In 2023, Japanese wages are rising, but probably not enough to keep inflation from falling below 2% if imported fuel and food prices fall. The dangers of moving too soon are obvious – Kuroda spent a decade trying to create inflation and rising wages with little effect. Imagine how difficult it will be to do this from scratch if price increases drop to near zero again. Like the economic recovery at the turn of the millennium, the current improvement in wages is too tentative to resist a tightening that would have companies and customers tightening their belts again.

The pragmatic Ueda was once nicknamed an owl, in the tradition of Christine Lagarde, who said she was neither a dove nor a hawk but intended to be a wiser kind of bird. With the bank’s objective perhaps in sight, it may again find it desirable to wait, even when apparently everyone is asking for change. Although the cost of waiting at this point is not negligible, the cost of an early exit to control the yield curve would be even greater.

To be fair to BOJ bosses in 2000, Japan’s bubble had deflated just a decade earlier. It was not necessarily apparent that Japan would lose decades of economic momentum. The country was still comfortably the world’s second-largest economy, China had yet to join the World Trade Organization and Japan’s newly independent central bank chafed under pressure from politicians to abstain. The global climate, more broadly, favored interest rate hikes. The Fed and other Group of Seven nations were in the midst of tougher campaigns. Even the celebrated Alan Greenspan began to reverse course in early 2001, followed by the Bank of England and finally the European Central Bank. So while the BOJ disaster damaged then-Governor Masaru Hayami’s reputation irreparably, in terms of the type of mistake he had famous company.

Central bankers may disagree for a variety of reasons. Sometimes they are completely against the proposal on the table. Other times, they agree with the general policy orientation but favor a more or less aggressive measure. They may even disagree with the language of the statement while voting with the majority. Other times, skeptics are drawn in by the need for board members to appear to be on the same page during key moments. And sometimes there are only real shocks: A 2007 BOE decision resulted in Governor Mervyn King and three other officials being defeated by a council that narrowly chose to abstain from walking.

With a little more time, as Ueda suggested, things could have been different. And a lot can change in terms of people’s philosophies over nearly a quarter of a century. Ueda will not be a lone wolf in April. He will manage an expanding bureaucracy with its own setbacks and institutional insights. The team will be crucial in terms of modeling and policy making. He’ll come in with not-too-clean skin, but with the ability to at least look past some of the epic battles of the Kuroda years. And he’ll have that 2,000 dissent in his pocket.

More from Bloomberg’s opinion:

• Ueda is the first surprise of the post-Kuroda era: Reidy & Moss

• Uedanomics, or Japan Becomes a Mystery Sensei: John Authers

• Kuroda’s fakes make the unthinkable plausible: Moss & Reidy

(Updates second paragraph to note that Ueda has now been officially appointed.)

This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News.

Gearoid Reidy is a Bloomberg Opinion columnist covering Japan and the Koreas. Previously, he led the North Asia breaking news team and was deputy head of the Tokyo bureau.

More stories like this one are available at bloomberg.com/opinion

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