© Reuters. FILE PHOTO: A man walks at the headquarters of Bank of Japan in Tokyo, Japan, January 18, 2023. REUTERS/Issei Kato/File Photo
By Takaya Yamaguchi and Kentaro Sugiyama
Tokyo (Reuters) – Japan’s government is likely to appoint academic Kazuo Ueda as the Bank of Japan’s next governor, two government officials told Reuters, a surprise choice that boosted the yen as investors bet he could phase out super-low interest rates sooner than expected.
Ueda, a former member of the BOJ’s policy board and an academic at Kyoritsu Women’s University, is considered an expert on monetary policy and played a key role in battling the initial phase of Japan’s deflation with the introduction of huge amounts of asset purchases and forward guidance for financial markets.
But most analysts said the appointment of the 71-year-old was totally unexpected — he was not even considered a dark horse candidate — and it was hard to tell immediately what that meant for any changes in the bank’s near-term monetary policy.
Investors have repeatedly tried to push up Japanese government bond yields in recent months on expectations the BOJ will start to phase out its massive stimulus programme when a new governor takes over after Haruhiko Kuroda’s second term ends in April.
While other central banks around the world have been scrambling to cool stubbornly high inflation by ramping up interest rates, the BOJ has been in no rush to change its super-loose policy stance, even as years of heavy bond buying increasingly distort the country’s bond markets.
GRAPHIC: The BOJ’s YCC faces a reckoning (
While Japanese inflation hit 4% in December, double the BOJ’s 2% target, Kuroda has argued it is too early to tell if price rises will be sustainable.
The government will also nominate Ryozo Himino, former head of Japan’s banking watchdog, and BOJ executive Shinichi Uchida as deputy governors, the two officials with knowledge of the matter said, speaking on condition of anonymity as they were not authorised to speak publicly.
The reported earlier that Ueda, Himino and Uchida will make up the new BOJ leadership if confirmed by parliament.
“I think the new team means that they will redesign the BOJ’s monetary policy, (and) not maintain the current policy,” said Takayuki Miyajima, senior economist at Sony (NYSE:) Financial Group.
Many central bank watchers had seen incumbent BOJ Deputy Governor Masayoshi Amamiya as the strongest candidate to take the helm given his deep experience in monetary policy, but the Nikkei reported that he had declined.
The yen strengthened after the Nikkei reported the appointments and then extended its gains, with the dollar last down 1.2% at 129.94.[FRX/]
Japan’s 10-year government bond yield hit 0.50%, the top end of the BOJ’s policy band.[JP/]
“Ueda is well-versed in interest rates. And he also has an experience of the communication struggle over the BOJ’s zero-interest rate policy when he was a board member,” said Shotaro Kugo, an economist at Daiwa Institute of Research.
“Being a theorist and practitioner at the same time would make him well positioned going forward as the BOJ enters a difficult period of (policy) normalization.”
“None of the three governor/deputy governors appear to have the (dovish) reflationist idea. I can see the government’s intention to renew the monetary policy direction from the previous one.”
The government is expected to present the nominees to parliament on Feb. 14.
In an opinion piece that ran on the Nikkei in July last year, Ueda said warned the BOJ against prematurely raising interest rates just because inflation briefly exceeded 2%.
But he also said the BOJ must consider an exit strategy from ultra-loose monetary policy, and review its extraordinary stimulus programme at some point, according to the piece.
Ueda served on the BOJ’s board from 1998 to 2005. He voted against raising interest rates to 0.25 percent from zero in August 2000, arguing that the bank could wait a while longer given limited inflation. The BOJ later reversed its decision and cut rates again.
