Academic Kazuo Ueda began his five-year term as governor of the Bank of Japan on Sunday, the start of his tenure coming at a critical time for the bank as protracted monetary easing under his predecessor to ensure both wage growth and stable inflation has exposed its negative side.
Ueda, the first governor hailing from academia in postwar Japan, will be tasked with maintaining the momentum toward achieving its 2 percent inflation target through monetary policy, and charting a path toward an eventual exit. Japan's inflation has topped the targeted level but the BOJ regards it as a temporal move, sparked by a surge in energy and food prices.
The 71-year-old also faces growing market pressure to overhaul its program to keep borrowing costs depressed, a legacy of former Governor Haruhiko Kuroda.
Kuroda left the top job at the BOJ after a decade-long stint on Saturday, defending its aggressive monetary easing as having lifted Japan out of deflation. But he admitted that the BOJ's inflation target was not achieved in a stable manner as the bank had hoped.
During his confirmation hearings in parliament, Ueda underscored the need of retaining monetary easing, while leaving the door open for changing the bank's policy on the yield curve control program, blamed for making the bond market moribund.
Prime Minister Fumio Kishida chose Ueda for his deep knowledge and experience in the field of monetary policy, a decision taken by financial markets as foreshadowing a gradual departure from Kuroda-era monetary easing that was synonymous with former premier Shinzo Abe's "Abenomics" economy-booster program.
Kishida and Ueda are expected to hold talks on Monday amid calls from critics for a review of a 2013 joint statement of the government and the central bank that has served as the basis for monetary easing to attain the inflation target.
Two new deputy governors Ryozo Himino, a former commissioner of the Financial Services Agency and Shinichi Uchida, a former BOJ executive director, assumed their posts in March, with the first policy-setting meeting under the new leadership scheduled for April 27 and 28.
"I will make policy judgements in a logical manner and explain the thinking behind them carefully," Ueda said during the confirmation hearing.
Ueda obtained a doctorate in economics from the Massachusetts Institute of Technology in the United States and was a member of the BOJ's decision-making Policy Board between 1998 and 2005, during which the central bank adopted a zero interest rate policy and embarked on quantitative easing. He taught at the University of Tokyo and Kyoritsu Women's University.
The BOJ has set short-term interest rates at minus 0.1 percent, and guided long-term ones to around zero percent through purchases of 10-year Japanese government bonds.
While the BOJ is in no hurry to shift toward a tighter monetary policy, any unwinding of monetary stimulus and trimming the expanded balance sheet are expected to be a daunting undertaking.
For the government, the BOJ's purchases of Japanese government bonds have helped it curb debt-servicing costs and step up fiscal spending, even as the central bank argues it is intended to meet the inflation target, not to fund government spending.
Martin Schulz, chief economist at Fujitsu, said monetary policy became "too dominant" during Kuroda's time, when more emphasis should have been placed on structural reforms to ensure the country's growth.
"Some parts of the government mistook the painkiller (monetary easing) for the medicine (structural reforms)," he said.
After the BOJ's fierce battle to rein in rising bond yields, pressure on the BOJ to modify or scrap the yield curve control program has been easing in recent weeks amid concerns in financial markets prompted by the collapse of Silicon Valley Bank and Signature Bank in the United States.
The impact of the recent market turmoil caused by the bank failures is "extremely big," said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
"The BOJ will likely keep the monetary easing carried out under Mr. Kuroda (at its policy meetings) in April and June," he said.