The Bank of Japan has been likened to a dull waiter who keeps serving glasses of alcohol although many drinks are still untouched on the table.

William Martin, the U.S. Federal Reserve Board chairman for nearly 20 years from 1951, said the mission of the FRB is “to take away the punch bowl just as the party gets going.”

Although stakeholders may not like it, countermeasures should be promptly taken to prevent consumers from becoming intoxicated in excessive economic booms, he said.

The globally renowned principle of central bankers has apparently been ignored by Bank of Japan Governor Haruhiko Kuroda, 78, who will be replaced in April.

Kuroda, who took the post in March 2013, is the longest serving BOJ chief.

Ten years ago, he declared the BOJ would achieve inflation of 2 percent within two years by treating deflation as a currency-related phenomena that can be treated via monetary policy.

The inflation target, however, was not met. And the BOJ’s experimental strategy of issuing banknotes and e-money to enliven the “party” fell flat.

Some people are now living in dire straits amid the global wave of inflation. Wage hikes are not enough to offset the highest surges in energy and other prices in 40 years.

But the BOJ has stuck with monetary easing to raise commodity prices, thus failing in its role as the “watchdog” of such prices.

The BOJ is, in fact, heading in the opposite direction of the central banks of other industrialized nations that are rushing to tighten credit. Many investment funds overseas have sold off large volumes of Japanese bonds and yen.

Despite all that, Kuroda admired himself for his “successful monetary relaxation” during a news conference following his final policy-making meeting on March 10.

The central bank has purchased government bonds totaling 580 trillion yen ($4.38 trillion) under “different dimension” quantitative easing. It now owns more than 50 percent of government-issued bonds.

Kuroda said there is “nothing to regret” from the bank’s virtual debt monetization framework.

“They do not constitute any negative legacies,” Kuroda said about the possibility that the BOJ could struggle over the issue under its new governor.

Prime Minister Fumio Kishida’s administration recently nominated economist Kazuo Ueda, 71, for next BOJ governor, although Deputy Governor Masayoshi Amamiya, 67, had been widely seen as Kuroda’s successor.

Behind the government’s decision is that citizens no longer support the BOJ’s dramatic monetary easing measures while commodity prices are rising.

CHANGE IN TIDE

Alarmed by the increasing prices of imported items, the Kishida administration reportedly summoned Kuroda to the prime minister’s office last autumn to express its concerns over the rapidly weakening yen.

Around that time, signs of change emerged within the BOJ.

Central bank executives indicated it would be “difficult” to retain the monetary easing policy, and that a revision must be made under the next governor.

A succession of retired senior BOJ officials voiced opposition to Amamiya being appointed governor because he had proposed and drafted the monetary easing policy. Amamiya then told those close to him that he should not become governor.

The Kishida administration would likely have picked Amamiya if it had feared the risk of plummeting stock prices and listened more to members of the ruling Liberal Democratic Party who are in favor of the “Abenomics” economic measures.

Ueda was already famous among BOJ officials for his expertise on monetary policies.

In his seven years as a BOJ Policy Board member until 2005, he suggested using the “policy duration effect,” under which market players would be certain of a long-term low-interest policy.

The method, currently called forward guidance, has been adopted by central banks in the United States and Europe.

Then BOJ Governor Masaru Hayami referred to Ueda as a “possible future governor.”

REFORMS NEEDED

Will Ueda really alter the BOJ’s long-held course of action?

His answers at questioning sessions in the Lower and Upper houses in February offer some hints.

Ueda said the current monetary easing policy was “appropriate” and that he would retain it.

This comment was likely made out of consideration to pro-easing lawmakers in the ruling coalition. Ueda must win their approval in the Diet for his appointment.

His remark on exchange-traded funds (ETFs) may reflect his true opinion. Ueda lambasted the BOJ’s ETF purchases that effectively underpinned share prices as a “huge problem.”

Several times, he mentioned the adverse effects and risks of large-scale quantitative easing.

The BOJ’s core business traditionally involves controlling the overnight interest rate. It was deprived of this monetary-easing means toward the end of the 1990s, after the interest rate reached zero.

Unconventional methods were later put in place, such as quantitative relaxation based on cash reserves, negative interest rates, and yield curve control for the long-term interest rate.

These gimmicks produced mainly adverse effects.

Taking into account the BOJ’s long-term interest rate control, investment funds have sold bonds, putting the central bank on the defensive.

Explaining why he decided to become the next BOJ governor, Ueda said he would like to tackle the current “difficult situation.”

Ueda, who had acknowledged the need for an “exit strategy” from monetary easing, must be aware of the urgency of reform.

Market uncertainties are looming. Banks in the United States and Europe have collapsed or struggled due in part to prolonged monetary easing.

The BOJ will need to hastily proceed with the exit strategy.

COMPROMISE WITH POLITICS

Ueda appears cautious about quickly raising interest rates since doing so could create a mess in the markets. Such cautiousness is in line with the Kishida administration’s argument.

The BOJ has bought a huge amount of bonds to take over the state’s ballooning debt. Sensing a possible review of the monetary easing policy, investors may sell bonds far more speedily, resulting in a surge in the long-term interest rate or a rapid depreciation of the yen.

With that in mind, Ueda is supposed to normalize the BOJ’s policy in a prudent manner, according to sources close to him.

Controlling the interest rate as part of the exit strategy is technically difficult but possible. So the real challenge lies in whether bank reform can be accomplished in a balanced fashion along with efforts to restore Tokyo’s fiscal health and cooperate with politics.

The BOJ under Kuroda continues buying a considerable amount of newly issued bonds annually to support the government, making it difficult for Japan to work out its fiscal budget without the mechanism.

The central bank will need to forge ahead with its exit strategy alongside the state’s fiscal reform.

The only possible choice will be to work closely with the Finance Ministry for decades to ease the government’s reliance on debt.

To achieve this, it is imperative to immediately move away from the form of politics that has become fully accustomed to the debt-dependent fiscal system.

In the Upper House election last year, almost all opposition parties pledged to lower the consumption tax rate or abandon the consumption tax.

Lawmakers who insist that spending on defense and child care can be financed with bonds are increasing their presence, even in the ruling coalition.

Instead of taking unpopular measures like raising taxes or cutting government spending, it may be easier for politicians to let the BOJ take the risk.

Ueda will have to overcome the barrier in politics.

Another concern is that Japan’s per-capita gross domestic product was ranked 27th in the world in 2021, down from 14th in 2012.

The road ahead for Ueda seems long and steep.