TOKYO, Japan (AFP) — The Bank of Japan’s long-standing policy of monetary easing is “appropriate,” its next governor, Kazuo Ueda, told parliament on Friday, not expecting a drastic change in the bank’s stance when he takes over in April. .
Under current boss Karuhiko Kuroda, the bank has adopted a series of extraordinary super-soft policies – from negative interest rates to spending huge sums on government bonds – in an attempt to prop up a sluggish economy.
It has stuck to those measures over the past year despite pressure to join the US Federal Reserve and other central banks in aggressively raising interest rates to fight rising inflation.
Ueda, an economics professor, told lawmakers he sees “continued monetary easing as needed,” warning of high levels of uncertainty in financial markets and the global economy.
“Continued monetary easing is needed to support the economy and create an environment in which companies can raise wages,” he said in his first public appearance since being nominated by Prime Minister Fumio Kishida.
His comments came after data on Friday showed consumer prices rose 4.2 percent last month, the fastest pace since September 1981 and more than double the bank’s 2 percent target.
The figure was driven in part by higher electricity bills, while the contrast between Fed tightening and Bank of Japan easing led to the depreciation of the yen against the dollar, making foreign goods more expensive in Japan.
But since price increases are not driven by demand or permanent wage increases, the bank views them as temporary, and therefore there is no reason to abandon the easing policy.
“These cost drivers are likely to ease in the future, with consumer price inflation likely to fall below two percent by the middle of next fiscal year,” Ueda said.
However, major Japanese companies, including Toyota, Nintendo and Uniqlo’s parent company Fast Retailing, recently announced massive pay increases, a rarity in a country where wages have been flat for a long time.
Although on Friday Ueda did not name a time frame for any policy adjustments, he said that if conditions for sustained 2% inflation come into view, “then we will take a step towards normalizing” monetary policy.
Ueda, 71, has a PhD in economics from the Massachusetts Institute of Technology and is considered a good communicator, preferring careful thinking to drastic action.
The prime minister appointed him last week to replace Kuroda, who is stepping down after ten years in office. Ueda is expected to be easily confirmed in Parliament, where the ruling coalition has a large majority.
He served on the Bank of Japan’s policy board from 1998 to 2005, but he has a tough job as chairman as analysts call the bank’s easy money policy unsustainable in the long run.
“We believe the Ueda team will eventually change the current policy structure,” UBS economists Masamichi Adachi and Go Kurihara said in a post-nomination note.
“However, the timing and specific process is difficult to predict, especially when the US economy could slide into recession.”
© Agence France-Presse