The Japanese government's nominee to lead the central bank is likely to keep monetary policy steady to support the economy, limiting shocks for the country's banks.
Kazuo Ueda was presented to Parliament on Feb. 14 as the nominee to take over as the next Bank of Japan governor. Ueda will likely focus on improving economic growth by maintaining negative interest rates for a few years and achieving a target of 2% inflation continuously, analysts said.
"I think his [Ueda's] stance is watching the economy carefully," said Takero Doi, professor at the faculty of economics at Keio University. The 2% inflation target has mainly been achieved due to higher energy prices, not due to wage hikes, Doi said.
Japan's consumer price index rose 4.0% year on year in December, exceeding the 2.0% target for the ninth consecutive month, according to government data. Japan's three largest banks — Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. — are likely to achieve their full-year profit goals for the year ending March 31, as higher interest rates boosted their overseas net interest margins.
Monetary policy
Under current governor Haruhiko Kuroda, Bank of Japan kept its benchmark interest rate at minus 0.10% but surprised markets in December by announcing a change in its yield-curve-control policy to allow yield on 10-year bonds to rise as much as 50 basis points from a previous tolerance of 25 bps.
The tightening move sent the local currency sharply higher. The yen had hit a record low against the dollar earlier in October as the U.S. Federal Reserve, along with most global central banks, continued to raise rates through most of 2022 in their fight against inflation.
Global interest rates may be nearing a peak as the pace of increases has slackened, prompting analysts to say that tightening is about to hit a pause. That would make it hard for the BOJ to exit its ultra-loose monetary policy, analysts said.
"I think the Fed will start cutting interest rates from early next year," said Tsuyoshi Ueno, a senior economist at NLI Research Institute. "The BOJ probably won't shift to the tightening of its monetary policy until the rate cut ends."
Ueda must be approved by both houses of Parliament in Japan, each controlled by the ruling coalition, before the government formally appoints him for a five-year term. Kuroda's five-year term ends April 8.
