In Tokyo on January 30th, Reuters reported that the Bank of Japan's shift towards more conventional monetary policy is being influenced by the diminishing presence of reflationists on its board. The appointment of Junko Koeda, a 49-year-old academic known for her hawkish stance on fiscal and monetary matters, is expected to bolster the move towards higher interest rates and inject fresh perspectives into the central bank's approach to stimulating growth.
Koeda, a Ph.D. holder from UCLA, is anticipated to align with Governor Kazuo Ueda's agenda for rate hikes, contributing her expertise in quantitative analysis of monetary policy effects. Her impending appointment to the board signals a departure from the previous emphasis on aggressive stimulus measures under Governor Haruhiko Kuroda.
The gradual exit of reflationist members like Seiji Adachi, alongside the upcoming departure of dovish member Toyoaki Nakamura, is seen as a pivotal shift towards a board more inclined towards consistent rate increases. This transition reflects the Bank of Japan's move away from unconventional policies back to a more traditional framework of adjusting short-term rates in response to economic and inflationary trends.
Former BOJ board member Takahide Kiuchi highlights that Koeda's appointment coincides with the board's evolution towards policy normalization and echoes Ueda's vision of employing short-term rates as the primary tool for guiding monetary policy. Koeda's expertise in monetary policy analysis is expected to enrich discussions within the board regarding the extent to which short-term rates can be raised and the pace at which the balance sheet can be reduced, according to analysts.
As a familiar figure at the central bank, Koeda has been vocal about the potential drawbacks of prolonged monetary easing, emphasizing the importance of stringent fiscal practices and allowing market forces to dictate the fate of struggling businesses. Her previous research has indicated that discontinuing negative interest rates could stimulate economic growth and that preemptively raising rates before achieving the 2% inflation target may not necessarily impede economic expansion.
Analysts note that the shift in the composition of the board signifies the Bank of Japan's pivot from combating deflation to addressing challenges stemming from its prolonged stimulus measures, such as managing its sizable balance sheet. Former BOJ official Nobuyasu Atago emphasizes the importance of the BOJ aligning its strategies with global standards in managing its balance sheet and engaging with other central banks facing similar challenges. In this context, Koeda's appointment is viewed as a strategic step towards this alignment.