Japanese Prime Minister Fumio Kishida is likely to nominate as the next central bank governor Kazuo Ueda, a respected monetary policy expert who has previously warned against an early exit from Japan’s loose stance.
Two people familiar with the discussions said the government will nominate the 71-year-old former Bank of Japan board member and professor at Kyoritsu Women’s University next week.
The appointment will end weeks of speculation among global investors about a successor to Haruhiko Kuroda, who will step down in April after overseeing a decade-long policy designed to keep interest rates at rock-bottom levels by buying massive amounts of government bonds.
In response to questions from reporters, Ueda declined to comment on whether he was asked by the government for the job. But he said: “The BoJ’s monetary policy is now appropriate. For now, I think we should continue the easing measures.
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, according to Japanese media.
It briefly strengthened against the US dollar, rising more than 1 percent to ¥129.81 before reversing course as markets digested the implications of the government’s choice. The yield on Japan’s 10-year government bond rose 1 basis point higher to reach 0.5 percent – the upper limit of the band where the BoJ tries to control its movements.
Analysts said Ueda’s selection would signal a desire to appoint a technocrat who would make the BoJ’s monetary policy decisions on economic rather than political grounds. Masayoshi Amamiya, the BoJ’s deputy governor and chief monetary strategist, was previously considered the top candidate to replace Kuroda.
“Mr Ueda was the most dovish member when he served on the BoJ board” between 1998 and 2005, said Kazuo Momma, a former monetary policy chief at the BoJ who is now executive economist at the Mizuho Research Institute. “He is a committed deflation fighter and is unlikely to take sudden hawkish decisions that would shock the market.”
In an interview in July with the Nikkei, which first reported the news of Ueda’s nomination, Ueda warned the BoJ against tightening monetary policy prematurely. But he added that it would need to review the “unprecedented” easing framework at some point in the future: “There is a need for the BoJ to prepare an exit strategy.”
But a former top executive at one of Japan’s largest financial institutions and an acquaintance of Ueda noted that the academic criticized Kuroda’s monetary policy, saying his criticism was “very scientific and economically oriented”.
In December, Kuroda surprised the market by tweaking the central bank’s policy to control yields on 10-year JGBs.
The sudden shift has prompted investors to challenge the BoJ’s claims that it will not tighten policy, causing government borrowing costs to rise and forcing policymakers to undertake bond purchases to maintain the new ceiling.
Benjamin Shatil, foreign exchange strategist at JPMorgan, said the market will take some time to understand how Ueda – if confirmed – will differ in his policy bias from Kuroda.
“Any early market movement could prove to be a flash in the pan as traders turn their attention back to incoming data from Japan which shows record wage growth and continued price pressure,” added Shatil.
One person close to Ueda said the former Tokyo University professor, many of whom are now senior bureaucrats at the BoJ and finance ministry, had been an important voice on monetary policy in the 1990s when Japan pioneered quantitative easing.
“He’s smart, he doesn’t shoot from the hip,” the man said. “He’s not someone who’s going to be looking for a big, quick win.”