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Japan's Government Picks Ueda as Next Central Bank Governor

Japan's government appoints academic Kazuo Ueda as the next central bank governor, signaling a potential end to the ultra-easy yield curve control policy.

Kazuo Ueda
Kazuo Ueda

Japan's government has chosen academic Kazuo Ueda as its nominee for the next central bank governor, replacing Haruhiko Kuroda, whose second five-year term ends in April. Ueda, a former Bank of Japan policy board member, will likely face the challenge of normalizing an ultra-easy policy criticized for distorting market function and crushing bank margins.

Ueda is expected to roll back the yield curve control (YCC) but hold off on tightening the monetary policy. His appointment surprised many investors who expected the job to go to a career central banker like deputy governor Masayoshi Amamiya.

End to Yield Control Policy Could Be in Sight

With inflation exceeding the BOJ's 2% target, Ueda will likely focus on theory and empirical analysis in guiding monetary policy. But he may be keener than his predecessor to roll back yield curve control (YCC), given his past comments flagging its potential flaws.

Bank of Japan
Bank of Japan

Ueda at the helm will make it easier for the BOJ to depart from the current stimulus than a choice like Amamiya, who played a key role in crafting Kuroda's policies. The yen rose on Tuesday, and the 10-year Japanese government bond yield held at the top of the BOJ's 0.5% cap.

Fragile Recovery Complicates Path Toward an Exit

The government also nominated Ryozo Himino, former head of Japan's banking watchdog, and BOJ executive Shinichi Uchida as deputy governors. They will replace incumbents Amamiya and Masazumi Wakatabe.

Ueda will chair his first BOJ policy meeting on April 27-28. Ueda takes the BOJ helm with inflation running at twice the central bank's target, which has given investors an excuse to attack the 0.5% cap set on the 10-year bond yield. The path toward an exit from the ultra-easy policy may be complicated by Japan's fragile recovery and slower overseas economies.