Prime Minister Fumio Kishida is expected to choose a continuity candidate to be the next governor of the Bank of Japan from a conventional shortlist, as Haruhiko Kuroda prepares to step down after a decade at the helm of the central bank.
However, Japan’s leader sent shockwaves through global markets on Friday following reports that he had broken with tradition and appointed an outsider to Japan’s policy and political establishment: economist Kazuo Ueda.
If the Diet approves Ueda’s nomination as expected, it will be the first time in post-war Japan that an academic has been appointed head of the central bank, a role historically played between officials from the BoJ and the finance ministry.
Ueda is no stranger to the central bank: he was a member of the board from 1998 to 2005, and helped introduce forward guidance when it implemented zero interest rate policy in the late 1990s. But respected monetary policy experts, who have warned against Japan’s somewhat loose stance, will face an uphill task in steering Asia’s most advanced economy toward interest rate normalization.
After the report of Ueda’s choice, if it briefly gained 1 percent against the dollar, while the yield on 10-year Japanese government bonds reached 0.5 percent – the upper limit of the BoJ trading band.
The selection process is closely guarded, according to people close to the government. Only a small circle of Kishida’s closest aides knew of the final choice, which some believe was made last month.
“There is a joke message about the issue of the BoJ governor and nobody can talk about it,” said a lawmaker from the Liberal Democratic party (LDP).
Earlier reports said the government had approached Masayoshi Amamiya, the BoJ deputy governor who was considered the top candidate for the job. But one of Kishida’s advisers has warned against assuming that the nomination is over. “There is still the possibility of a dark horse candidate,” he said.
Analysts said the highly confidential process confirms the prime minister’s determination to choose a governor who will be able to transcend politics in tackling the contentious pivot away from a decade of ultra-loose policies.
The Kishida government is under intense pressure from the LDP faction previously led by the late former prime minister Shinzo Abe to nominate a candidate who will not deviate from the “Abenomics” program that supports the BoJ’s ultra-easy monetary policy.
“Mr. Kishida was hesitant about the BoJ chairman’s selection being influenced by LDP’s internal political considerations, so he chose an economist instead of Mr. Amamiya, who will inherit Mr. Kuroda’s policies,” said Takao Toshikawa, editor-in-chief of political newsletter Insideline.
According to people familiar with the discussions, Kishida is also expected to nominate Ryozo Himino, a former commissioner of the Financial Services Agency, and Shinichi Uchida, a BoJ executive who has played a key role in shaping Japan’s monetary policy, as deputy governors.
Uchida, 60, is considered a star and future governor candidate at the BoJ, with ties to the global banking community. People close to the central bank said Ueda, 71, would rely heavily on Uchida to make monetary policy.
Masatoshi Kikuchi, chief equity strategist at Mizuho Securities, said Ueda, a University of Tokyo professor emeritus with a PhD in economics from MIT, does not belong to the reflationary school that advocates massive monetary expansion.
“He is a very balanced person politically. The end of the policy of quantitative and qualitative easing will be faster than if Amamiya is elected,” added Kikuchi.
After reporting on his choices on Friday, Ueda told reporters that he thought the BoJ’s current monetary policy was appropriate.
“Right now, I think we have to continue to implement measures,” he said. “I have been an academic for a long time, so I want to make various decisions logically and explain them clearly.”
Ueda declined the Financial Times’ request for further comment.
Other analysts, however, question whether Ueda’s choice is a sign of a divisive headhunting process that has found few candidates willing to take the job.
Two people with direct knowledge of the discussions said Amamiya himself had recommended Ueda after rejecting Kishida’s offer, saying the BoJ, like the US Federal Reserve and the European Central Bank, should consider academics for the post of governor as a “global standard” rather than just one. switch between government officials.
Amamiya also said that as the architect of the BoJ’s monetary policy, he would not be able to impartially review it. Amamiya declined to comment.
In addition to Hiroshi Nakaso, another former BoJ deputy governor, Kishida is also considering Shigeaki Okamoto, a former finance ministry bureaucrat and vice chairman at Japan Tobacco, but both have privately expressed strong reluctance, according to people familiar with the discussions.
“Turning around an academic who actively comments on monetary policy but hasn’t worked at the BoJ for almost two decades reinforces the impression that Ueda is a backup plan,” said Tobias Harris, deputy director at think-tank German Marshall Fund. .
“I think that politically, the decision is less about power than looking for someone who will avoid anxiety in other ways from the relevant veto players in the process,” he said.
After Kuroda stepped down as governor in April, many economists believe Ueda will make a gradual shift toward tightening monetary policy — a process that would see him scrap his commitment to keep 10-year government bond yields at historically low levels and raise interest rates, which remain at negative area at minus 0.1 percent.
“Japan is no longer in deflation, so unprecedented measures such as negative interest rates and yield curve controls should be left to the new governor,” said Eiji Maeda, a former assistant governor of the BoJ who is now president of the think-tank Chiba Bank Research Institute. .
But most analysts expect the new governor to stick with the zero interest rate policy for the foreseeable future.
The BoJ is facing strong market pressure to abandon aggressive monetary easing as Japan’s core inflation rate – which excludes volatile food prices – has risen to a 41-year high of 4 percent.
But the central bank insisted that rising prices did not lead to sustained wage increases and that loose monetary policy was still needed to support the economy amid risks of a slowdown outside Japan.
In an interview in July with Nikkei, Ueda warned the BoJ against tightening monetary policy prematurely. But he added that the central bank should review the “unprecedented” easing framework in the future: “There is a need for the BoJ to prepare an exit strategy.”