By Noriyuki Suzuki,
Nominee for Bank of Japan governor Kazuo Ueda said Friday he views the current monetary easing policy as "appropriate" and will maintain it to support the economy and stably achieve the central bank's 2 percent inflation target.
Ueda, an academic and former member of the central bank's Policy Board, told a confirmation hearing in parliament that he does not see the need to revise a decade-old joint statement with the government that includes a pledge to achieve 2 percent as soon as possible. But he said the BOJ would examine the pros and cons of monetary easing as required.
The BOJ is facing growing pressure from financial markets to tweak its accommodative monetary policy as several side-effects have become evident, including distortions in the bond market following the bank's massive bond-buying program. Financial markets are looking for clues as to the timing of a policy change if he takes the helm.
"I believe it's necessary (for the BOJ) to continue monetary easing to firmly support the economy and create an economic environment that enables companies to raise wages," Ueda, 71, told the steering committee of the House of Representatives.
If the inflation outlook improves further, the BOJ will have to review its yield curve control (YCC) program, Ueda said, adding that shifting its target from 10-year government bond yields to shorter-maturity bonds would be "one of the options."
"I intend to take time and consult thoroughly with other board members to determine what (YCC) should look like," he added.
Ueda, a surprise pick, will become the first BOJ chief hailing from academia in postwar Japan if confirmed. He will be tasked with guiding the central bank through what could be a tumultuous period of charting a path toward normalization, after a decade of monetary easing under the "Abenomics" economy-booster program.
"I'd like to designate the next five years as a period to put the finishing touches to the years-long mission to attain price stability," Ueda said, noting that the BOJ needs to make "buds" of good inflation growth.
During the hearing, which lasted over two hours, Ueda warned of tightening monetary policy prematurely and hurting the economy. Concerns have grown about the swollen balance sheet due to the aggressive buying of government bonds and exchange-traded funds.
Later Friday, Prime Minister Fumio Kishida said at a press conference that the government "did not feel uncomfortable with" the remarks by Ueda on monetary policy.
The premier expressed hope to meet with Ueda "at an early date" after he becomes BOJ governor, in order to confirm cooperation between the government and the central bank to "realize sustainable economic growth under price stability."
Both houses of parliament must give their approval for Ueda before the government can formally appoint him as the new BOJ governor, succeeding incumbent Haruhiko Kuroda. The new governor's term will begin on April 9, while the new deputy chiefs will start on March 20.
Nominees for deputy governors -- Ryozo Himino, a former commissioner of the Financial Services Agency and Shinichi Uchida, an executive director at the BOJ -- also told parliament that monetary easing should continue.
Ueda said the 2 percent inflation target is a global standard. "Given that underlying price trends have become desirable, I don't think it necessary to change the wording on the inflation target for now," he said, in reference to the 2013 joint accord with the government.
Government sources said earlier that Kishida's government is considering revising the accord with the next governor while academics and corporate executives have called on the BOJ to make 2 percent inflation a long-term goal.
The core consumer price index excluding volatile fresh food items, a gauge closely watched by the BOJ, jumped 4.2 percent in January from a year earlier, rising at the fastest pace in 41 years.
Ueda said the current bout of inflation is due largely to higher costs, rather than strong domestic demand, and the inflation rate will likely undershoot the 2 percent target toward the middle of the business year from April.
The central bank owns about half of the outstanding government bonds. Under its yield curve control program, the BOJ sets short-term interest rates at minus 0.1 percent and guides 10-year Japanese government bond yields to around zero percent.
After its surprise decision to widen the band for 10-year bond yields to 0.5 percent in December, BOJ watchers are waiting to see if the upper limit is raised further, or whether the program will be scrapped altogether under Ueda.
"I will make policy judgments in a logical manner and explain the thinking behind them carefully," said Ueda, who sat on the BOJ Policy Board between 1998 and 2005.
Critics have taken issue with the BOJ's persistence with monetary easing that has driven the yen's rapid depreciation of late and inflated import costs for resource-scarce Japan. They view the BOJ as out of touch with the pain felt by consumers at a time when wages are not keeping pace with inflation.
"I work at a university so I buy lunch boxes at a convenience store every day. I've been feeling prices rising over the past year, because a lunch box that used to cost around 450 yen ($3.3) is now over 500 yen," Ueda said.
"The central bank needs to closely watch how sensitive households are to changes in the prices of everyday goods."
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