Feb 5, 2023
Amamiya Would Weigh on Yen, Be a Boost for Bonds, Analysts Say
(Bloomberg) -- If reports are accurate and Masayoshi Amamiya becomes the next Bank of Japan governor, that would be bullish for bonds and weigh on the yen and local financial stocks, according to market participants.
Strategists and economists focused on Japan expect investors may need to recalibrate their expectations for policy adjustment if Amamiya is confirmed. The Nikkei reported that the current deputy governor was approached by the government for the role, a choice that would be seen as likely to extend the central bank’s ultra-easy monetary policy.
The shock December decision to tweak yield-curve control illustrated the shockwaves that any hint of BOJ policy change can trigger, sending the yen and Japanese yields soaring and Treasuries lower. Traders pricing in an early withdrawal of stimulus could pull those wagers if they expect a delay to any policy tweaks. The yen retreated in early trading on the reports.
Yen Slides After Amamiya Said to Be Approached as BOJ Governor
Here’s a selection of comments on the likely nomination:
Dane Cekov, a senior strategist at Nordea Bank ABP in Oslo:
“If this news is correct and Amamiya accepts the position, foreign investors will need to readjust their expectations of the BOJ abandoning its ultra-loose policy soon,” he said. “Some have hoped that the government would pick someone from the more hawkish camp, for example Nakaso. As such, we could see dollar-yen continue to move higher when European and US markets open.”
Bullish for Bonds
Antoine Bouvet, senior rate strategist at ING Bank in London:
“This should provide a bit of bullish impetus after a bruising week for bonds.”
“One caveat is that I feel consensus has already moved towards a very gradual normalization process after the December frenzy. Another is that Japanese investors have been net sellers of foreign bonds for the best part of a year so I don’t think it was right to expect a a wave of selling on the back of BOJ normalization anyway.”
Andrew Ticehurst, a rate strategist at Nomura in Sydney:
“These headlines from the Nikkei are positive for USD/JPY, particularly given that positioning data suggests that investors are short the USD and long JPY. They are also likely positive for JGBs (lower yields than otherwise), though, for the bond market, the surprisingly strong US data on Friday night, and potential (hawkish) Fed implications will likely be the bigger driver.”
John Bromhead, a strategist at Australia & New Zealand Banking Group in Sydney:
“Amamiya is a Kuroda advocate, so certainly seen to be on the dovish end of the spectrum of the possible candidates,” he said. “If the reports are true, then dollar-yen will be supported on dips - if explicitly denied, we will see dollar-yen trade back below 130 pretty quickly. We think there probably is some substance to the rumors though.”
Shinsuke Kajita, chief strategist at Resona Holdings in Tokyo:
Dollar-yen may rally toward a year-to-date high of 134.77 as a sharp shift in monetary policy looks unlikely in the near term although even Amamiya wouldn’t be able to completely put out speculation of a future policy change. Amamiya is the most dovish among potential candidates.
John Vail, chief global market strategist for Nikko Asset Management Co. in Tokyo:
“If Mr. Amamiya is appointed, such would not be a major surprise, but the Yen would likely be somewhat weaker during the first part of his term than if others had been appointed,” he said. “Japan’s inflation has basically peaked and like the rest of the world, should approach much more tolerable levels by mid-year, especially on a 6-month annualized rate, which should provide some relief to the BOJ and the markets.”
Positive for Japan Stocks Except Financials
Amir Anvarzadeh, strategist at Asymmetric Advisors Pte:
“The yen would get weakish and exporters and growth stocks would rally while financials will stall,” he said. “If rates remain low then financials will obviously stall as hopes were that yield curve will steepen once YCC is abandoned.”
Michael Makdad, an analyst at Morningstar:
“If someone perceived as much more hawkish had been reported, it would have likely been positive for bank stocks and the yen. Amamiya in contrast is a name that the market is likely to interpret as meaning more gradualism in the BOJ’s stance.”
Shoji Hirakawa, chief global strategist at Tokai Tokyo Research Institute
Nikkei’s report on the BOJ governor will remove uncertainty about monetary policy. The yen is unlikely to appreciate. The bottoming out of the US economy and a weaker yen will be positive for the stock market.
Ayako Sera, a market strategist at Sumitomo Mitsui Trust Bank Ltd.
“Essentially, it would be positive for the banking sector if short-term interest rates were low and long-term interest rates were high, basically if the gap between long- and short-term interest rates were to widen, but I think that expectation has been postponed now that Mr. Amamiya’s name has been mentioned.”
“Since it’s just Nikkei reporting and it has not yet been officially decided, stock prices are unlikely to fall for a while until the official decision is made this Friday. While stock prices are not going to rise significantly on this news, it makes the overall market harder to fall and stocks less likely to be sold.”
Focus on Wages
Joseph Capurso, head of international economics at Commonwealth Bank of Australia in Sydney:
“It is normal that a deputy would be considered for the top job,” he wrote in a note to clients. “The news does not change our view the BOJ will dump yield-curve control and negative interest rate policy by mid-year if wage growth continues to pick up.”
Policy Changes Still Possible
Ebrahim Rahbari, strategist at Citigroup Inc.
“We think policy changes are likely under Amamiya-san too and if Amamiya-san was to be selected, markets may in fact debate if there is more room for policy changes to be coordinated into the March BOJ meeting.”
Hiroaki Muto, economist at Sumitomo Life Insurance Co.
“I think there’ll be a rethink of the YCC program itself, but that will have market impact including a stronger yen, cheaper stocks and sudden volatility. I think it will be more a gradual approach, with changes made little by little. They’ll see how things are and respond bit by bit. I do think the YCC itself will be reviewed and the joint statement will also be reviewed, so it we’ll no longer have a super easy state, but they’ll announce in advance and do things slowly without causing any surprises.”
--With assistance from Hiroko Komiya, Masaki Kondo, Yasutaka Tamura and Keiko Ujikane.
(Updates with additional comments.)
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