(Bloomberg) -- The yen fell on the back of a Nikkei report that the Japanese government approached Bank of Japan Deputy Governor Masayoshi Amamiya about succeeding Haruhiko Kuroda at the helm of the central bank.

The Japanese currency declined as much as 1% against the dollar on speculation that Japan’s ultra-easy monetary policy will endure if Amamiya, who has been instrumental in formulating the large-scale stimulus programs, is the next successor. In London trade, it trimmed losses to trade around 132.11.

Amamiya is a longtime heavyweight at the BOJ and seen by market players as the closest to a continuity candidate among the likely replacements. The Nikkei report said the government is in the final stage of finalizing its nominations, citing government and ruling coalition officials. 

Japanese officials including the deputy government spokesman refuted the Nikkei report, saying it wasn’t based on fact. The central bank told Bloomberg that it was not in a position to comment on the nomination report.

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Benchmark 10-year bond yields edged higher to 0.5%, a move that suggests traders are reluctant to abandon their bets on BOJ policy tweaks, regardless of who becomes the next governor.

BOJ watchers are aware that initial local media reports on central bank personnel changes should be treated cautiously, as in the past the government went with other candidates in the face of intense criticism after names were leaked to the media before an official nomination.

Deputy Chief Cabinet Secretary Yoshihiko Isozaki said the government hadn’t approached Amamiya, offering the strongest rebuttal of the report. His remarks were largely echoed by Toshimitsu Motegi, the ruling party’s secretary general, later in the day. 

Earlier Monday, Finance Minister Shunichi Suzuki said he hadn’t heard anything about the BOJ nomination, while Amamiya didn’t respond to an inquiry from reporters about whether he was approached for the role.

Prime Minister Fumio Kishida has said the nomination for governor will come in February. The government will also name its nominees for two deputy governor positions. 

Kyodo News reported Monday that the nomination will come some time next week.

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The impending leadership change could usher in policy adjustments after years of full-bore stimulus. Speculation has simmered that such changes will accompany a new governor. 

“The chances of rejecting current policy have become slim,” said Toru Suehiro, chief economist at Daiwa Securities, in a note. “While the scrapping of yield curve control is possible once the stabilization of bond market is confirmed, a clear rate hike move like ending the negative rate seems unlikely.”

Should that view prevail among investors, the yen is likely to stay under pressure for the time being even if a BOJ led by Amamiya doesn’t rule out the possibility of a policy shift.

“Amamiya is the most dovish among potential candidates,” said 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.”

Kuroda is scheduled to step down as governor on April 8 after the longest stint running the central bank in its 140-year-old history. He’s been instrumental in pushing one of the most ambitious monetary stimulus programs of modern times — and Amamiya has been a key figure in helping design BOJ policies.

The 67-year-old Amamiya and former Deputy Governor Hiroshi Nakaso have been seen by economists as front-runners for the post. If either of them get the post, it would return the position to a veteran central banker for the first time in a decade. Of the two, Nakaso is seen as slightly more hawkish on policy.

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Japan’s benchmark Topix Index eked out modest gains amid weakness in the yen but financial shares were notable decliners. An end to yield-curve control would be seen as a positive for the bottom line of the country’s beleaguered banking sector.

What Bloomberg Economics Says...

“We don’t see the BOJ withdrawing stimulus anytime soon...Ending YCC would raise borrowing costs, slow the recovery and make sustainable inflation harder to achieve – the red line for the BOJ.”

— Yuki Masujima, economist

For the full report, click here

Choosing Amamiya would signal Kishida’s desire both for continuity and an ability to respond to conditions with flexibility. 

Deputy Chief Cabinet Secretary Seiji Kihara said Sunday that it was important to have stability in finance and macroeconomic policies. Speaking on public broadcaster NHK, Kishida’s close aide stressed the need for stable and sustainable price growth.

Foreign investors will need to readjust their expectations of the BOJ scrapping its ultra-loose policy soon, said Dane Cekov, a senior strategist at Nordea Bank ABP in Oslo. 

“Some have hoped that the government would pick someone from the more hawkish camp, for example Nakaso,” he said. “As such, we could see dollar-yen continue to move higher when European and US markets open.” 

--With assistance from Michael G. Wilson, Toru Fujioka, Shiyin Chen, Masaki Kondo and Ryotaro Nakamaru.

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