Macroscope | Japan’s central bank is at a policy crossroads: which path will new chief Kazuo Ueda take?

When the economic disruptions from the Covid-19 pandemic began to bite, causing inflation to soar and ushering in a regime change in markets that created huge uncertainty about interest rates and valuations, Japan was a beacon of predictability.

As other leading central banks raised borrowing costs aggressively, the Bank of Japan (BOJ) remained steadfastly committed to its ultra-loose monetary policy. Determined to banish the chronic deflation that had plagued Japan for decades, the BOJ resisted the dramatic rise in bond yields in other countries by fiercely defending its cap on the country’s 10-year yield and keeping rates in negative territory.

In December, speculative bets against the BOJ’s “yield curve control” measures forced the central bank to lift the cap to half a percentage point, letting the monetary tightening genie out of the bottle and reinforcing the perception that Japan was caving to pressure to start normalising policy.

On top of the uncertainty surrounding Japan’s exit from super-loose policy, an untested and little-known academic has just been nominated to take the reins of the BOJ. On Tuesday, prime minister Fumio Kishida appointed Kazuo Ueda to replace Haruhiko Kuroda as governor in April.