Kazuo Ueda, the Bank of Japan’s first new governor in 10 years, pledged in his inaugural news conference to make every effort--in theory as well as in practice--to pursue price stabilization, calling it his “comprehensive” mission.

Will Ueda live up to his word and attain the central bank’s years-long goal? How will he prepare for an eventual “exit” from his predecessor’s ultra-loose monetary policy?

We hope Ueda will humbly face the realities of the nation’s economy and price situation and seek to make the Bank of Japan worthy of the public’s trust.

ASSESS PRICE OUTLOOK

At a news conference in which he announced his resignation, Ueda’s predecessor, Haruhiko Kuroda, noted to the effect that the goal of sustained price stability has yet to be attained. He stressed that Japan was no longer battling deflation and noted figures for the economy and employment had improved. However, he conceded his failure to reach a price stability target of 2 percent per annum even after his 10 years at the helm.

On the other hand, Kuroda’s loose monetary policy grew in complexity along with the repeated use of “different dimension” methods. The BOJ’s holdings bloated to an unprecedented scale through massive purchases of government bonds and caused all sorts of side effects, including market distortions.

How will Ueda deal with this situation? The first task is to accurately assess the price outlook.

Since last autumn, the consumer price index has risen by around 3 to 4 percent--its highest in decades. In the absence of significant wage increases, workers have taken a hammering.

But the central bank is still clinging to its monetary easing policy, on the understanding the primary cause of high prices is the skyrocketing cost of resources overseas, and that in the absence of sufficient wage increases, the price rise rate will eventually fall short of 2 percent.

True, there are private-sector predictions that project the easing of price hikes in the latter half of the fiscal year.

During this year’s “spring labor offensive,” a certain level of wage hikes was achieved, and some economists point to changes in economic activity that were conditional on “no price and wage hikes.”

Given the situation in Europe and the United States where decisions to deal with inflation were delayed, there is no cause for optimism. The central bank needs to be prepared to act swiftly with all sorts of economic and price-related scenarios.

PREPARING FOR ‘EXIT’

Ueda told the news conference he would maintain his predecessor’s ultra-loose monetary policy for the time being. This offers a good opportunity to examine whether the policy is appropriate.

European and American interest rates have risen sharply since last year, while the Japanese yen has depreciated drastically, and prices have soared. Still, Kuroda rigidly refused to even micro-adjust his policy. His words and actions suggested he did not really care about the hardships faced by the public.

Ultimately, Kuroda was forced last December into making a partial softening of his stance. But his attitude not only amplified the economic convulsion, but also probably hurt the Bank of Japan’s credibility. This is a lesson Ueda ought to bear in mind.

But Ueda’s most urgent task now is to discuss and explain the shape the “exit” from the ultra-loose monetary policy will take in the future.

With the central bank holding more than half the government bonds issued, how can a policy change be realized? What impact will it have on the domestic economy? Will it hurt the central bank’s finances and shake its credibility?

Kuroda used to assert it was “premature” to discuss such questions. But they cannot be left unaddressed forever, either. Ueda must live up to his accountability by looking beyond the present.

In Europe and the United States, rapid interest rate hikes drastically reduced the assets of financial institutions, causing some to go bankrupt or be forced into mergers.

The Bank of Japan must keep an eye on the stability of the nation’s financial system so a similar does not arise in Japan at the “exit.”

We fear the government and politicians will bring pressure to bear on the BOJ when the institution switches from its monetary easing policy by demanding a postponement.

But any financial policy must be made with decisions based strictly on the state of the economy and price trends. It is crucial for the BOJ to have the public’s trust when it comes to asserting its independence. And for that to be possible, the bank must maintain full transparency through a readiness to always lay its cards on the table.

ISSUES OF RESPONSIBILITY

But the above responsibility is not the BOJ’s alone.

As the massive monetary easing policy drags on, loud calls have been made from within the government and the ruling coalition for a further issuance of government bonds--the scale of which has already bloated to an unprecedented level--as if on the premise that the ultra-low interest rates are here to stay forever.

But that premise is untenable, unless the BOJ’s purchase of government bonds is strictly a part of its financial monetary policy and not for covering up fiscal deficits.

Amid signs of change in the situation, it is clearly not possible to continue forever with fiscal management that relies on the BOJ and low interest rates. It is now crucial to improve the nation’s fiscal health by tightening pertinent regulations that have remained lax since the COVID-19 pandemic started.

It is not only the fiscal policy that will be responsible for the improvement of the economic cycle. Prime Minister Fumio Kishida has called for a “new capitalism,” but his initial focus on the redistribution of wealth has since disappeared, and he has yet to explain what sort of society he is aiming for.

It is time for private businesses, too, to take a hard look at whether they have contributed in any way through proactive wage hikes and well-considered investments.

How can the Japanese economy’s stable growth be realized on th basis of “a non-deflationary state?” The government as well as the private sector must act responsibly.

--The Asahi Shimbun, April 12