Investing Pioneer – 11:38 PM EST – 1/26/2023
In light of rising rates worldwide, with the natural center being the US economy and Federal Reserve, the Bank of Japan has faced particularly tough challenges. A large debt load at 260% of annual economic output as of 2021 (NY Times, 2022) means the economy may be particularly sensitive to any marginal rise in rates.
With a 40% depreciation against the dollar at its height in October, the Yen being a casualty of rising US treasury rates – thereby decreasing the supply of USD in circulation – only in October did conditions ease for the Japanese currency.
Now, the Bank of Japan will be changing leadership, a move that may marginally affect the path of policy going forward. Kuroda, the current governor, will step down in less than 3 months (April 8, 2023), ending ten years as governor.
Japans Prime Minister Kishida:
“I am to select an appropriate BOJ (Bank of Japan) governor
with an eye on the economy.”
Reportedly, candidates to succeed Kuroda are reluctant to take his position.
Goushi Kataoka, a former Bank of Japan board member says,
“For any candidate, you don’t want to be a governor now because there is no margin for error. If he/she failed, it would undermine the central bank’s raison d’être.” (FT, 2023)
The more cynical person may take the view that there is no way out from deterioration, making the inherent legacy of whoever takes the role of governor spoiled. Of course, speculation, relating this matter to the leading candidates’ reluctance may be misguided.
As inflation rises above 4% in Japan, and core consumer price inflation reaches a 41 year high (BBC, 2022), Japans central planners will need to balance monetary easing – keeping rates relatively low – with a now increasing erosion of purchasing power within the nation.
