• Rising oil prices put upwards pressure on inflation
• That also weighs on growth, creating a stagflationary trend
• How to deal with stagflation situation is a hard question for monetary policy
• In general, policymakers can deal with such a situation with a mix of fiscal and monetary policy
• But it is hard to control the economy with monetary policy alone
• BOJ was able to focus on easy policy to end deflation previously
• But now Japan is experience inflation so that may not be the case
• BOJ not targeting FX so not in a position to judge whether stronger or weaker yen would be desirable
• FX move as a result of monetary, fiscal policy decisions

For some context, Asada is a newly appointed member at the Japanese central bank. He will be replacing Asahi Noguchi, with his term formally beginning on 1 April. And as a reminder, he is one appointed by Japan prime minister Takaichi and is widely considered a “reflationist” or a monetary dove.

I elaborated more on his appointment in February here. As mentioned then:

“The idea is to put Asada and Sato in place to act as block and counterweight to the more hawkish leanings that the central bank wants to pursue.

While on paper they do look like dove-for-dove replacements to Noguchi and Nakagawa, they are more reflationist in nature and that could provide some pushback against the BOJ’s plans to hike rates moving forward.

Of note, Asada ascribes to Modern Monetary Theory (MMT) and argues that that debt doesn’t matter as much as growth. In other words, the emphasis of his core principle is the necessity for coordinated fiscal and monetary policy to stabilise the economy.

As for Sato, she is more from a legal background. And while her policy leanings aren’t as clear, it is more than likely that she will favour a more institutional perspective in aligning with the government’s goal of ensuring that monetary normalisation does not stifle economic growth.”