Scholar nominated to follow Kuroda as Bank of Japan chief

Kazuo Ueda, an economist and former member of the Bank of Japan policy board, speaks to media members in Tokyo, on Feb. 10, 2023. (Kyodo News via AP)

TOKYO — An economist was nominated Tuesday to head Japan's central bank and take on the daunting task of guiding the world's third-largest economy to stronger, stable growth.

The government's choice of Kazuo Ueda, who earlier served on the central bank's policy board, to succeed Haruhiko Kuroda came as a surprise to many when it was leaked to Japanese media last week. Most Bank of Japan governors have hailed from the Finance Ministry or the bank itself.

Kuroda will be stepping down on April 8 after serving two five-year terms, during which he pushed an unprecedented ultra-easy credit strategy meant to vanquish deflation, or chronically falling prices. While other major central banks have aggressively raised interest rates to cool decades-high inflation, the BOJ has stuck to monetary easing. Its key interest rate remains at minus 0.1%.

Some observers see choosing Ueda, 71, as a way for Kishida to differentiate his policies from the "Abenomics" strategy of former Prime Minister Shinzo Abe, mainly centered around near-zero interest rates and massive asset purchases by the central bank meant to combat stagnation.

Much of the burden for trying to jolt Japan out of its doldrums has fallen to the central bank. The Abenomics strategy also involved heavy government spending, but it made limited headway in enacting sweeping reforms to help Japan raise productivity and streamline bottlenecks in the economy.

The economy continued to meander between spells of modest growth and recession and then the pandemic and slowdowns in other major economies hobbled growth. The government reported Tuesday that the economy grew at an annual pace of 0.6% in October-December, after contracting 0.3% in previous quarter.

Disruptions from the pandemic, a shortage of imported parts from China and rising prices -- especially for energy -- have weighed on Japan's recovery even after Tokyo loosened precautions meant to keep COVID-19 outbreaks under control, allowing foreign tourists to enter after more than two years of stringent controls.

The economy grew at a 1.1% pace for full-year 2022.

The government of Prime Minister Fumio Kishida, whose support ratings have sagged, presented Ueda and other nominees for top BOJ posts to parliament Tuesday. Ueda will face questioning by lawmakers, but approval of his nomination is likely given that both houses of parliament are controlled by the ruling Liberal Democratic Party.

"I plan to do my best to properly answer all the questioning in Parliament," Ueda said on nationally televised news.

Ueda is a graduate of the prestigious University of Tokyo and holds a doctorate from the Massachusetts Institute of Technology. He has taught at Japanese and foreign universities and has connections in international academic circles. Ueda was on the BOJ's board of governors from 1998-2005.

Opposition parties raised objections, saying Ueda will likely stick to the Abenomics approach.

"What needs to be confronted instead is that Abenomics was a big mistake," opposition lawmaker Akira Nagatsuma said on public broadcaster NHK TV.

Kuroda has described the policies he championed as a "big bazooka" of monetary easing that was meant to force Japan out of a cycle of falling prices and stagnant growth. The BOJ now has gigantic holdings of Japanese government bonds and scant room to maneuver while moving toward a more neutral monetary stance.

The next BOJ chief will be grappling with inflationary pressures and potential slowdowns in other major economies where central banks are still raising rates to try to tame rising prices. Japan's consumer inflation rate is about 4% now, though much of that is due to soaring prices for imports of oil and other goods.

While the economy resumed growing in the last quarter, business investment remained weak and rising prices were straining both corporate and consumer budgets, Darren Tay of Capital Economics said in a report.

"With business investment slowing even quicker than we anticipated and a lower savings rate leaving less room for households to absorb rising prices, the coming exports slowdown due to likely recessions in other advanced economies should tip Japan into recession in the first half as well," he said.

It's possible that Japan's growth may not be restored that easily, no matter what Ueda does. Other potential candidates for the BOJ governor post reportedly declined to be nominated for the job.

"One way to look at it is that there is just way too much for fiscal policy to solve on its own," said Takashi Kozu, a director at the Securities Analysts Association of Japan.

"The question should be about how productivity is going to be improved," he said in an interview with JB Press, an online business news outlet.