Japan’s central bank chief dogged by painful history of premature moves
TOKYO—The Bank of Japan’s policy board was moving to raise rates above zero when its youngest member spoke up in dissent. He was nervous about whether the stock market might take a dive and commented, “The cost of waiting is not all that high." Kazuo Ueda was outvoted 7-2 on that day in August 2000, but the prescient call made his reputation. Soon the dot-com bubble burst and the central bank had to ease policy again.
Twenty-four years later, history repeated itself—almost. On July 31, the Bank of Japan again decided to raise rates over two dissenting voices. This time, the leader of the majority was Ueda, now the bank’s 72-year-old governor.
He argued that Japan needed to raise rates several times if it could. Global markets swooned, Japan’s benchmark stock average suffered its worst day since 1987, and within a week, one of Ueda’s deputies had to take it back. Shinichi Uchida said there wouldn’t be rate increases when markets were nervous.
There was no need to hurry with inflation mostly under control. And, in case anyone was wondering, Uchida said there was no daylight between him and his boss. The flip-flop reassured markets, and stocks recovered almost all the ground they lost on their bad day.
But it shows the tightrope Japan is walking as it tries to bring interest rates firmly into positive territory. The Federal Reserve and the European Central Bank got there years ago out of necessity because of high inflation. Japan, by contrast, ended its eight-year negative-rate policy only in March.
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