(Bloomberg) -- Japanese Prime Minister Fumio Kishida will nominate Kazuo Ueda, a professor and former Bank of Japan board member, to take the helm of the central bank from April, according to people familiar with the matter, in a shock move that sparked sharp moves in the yen.
The decision blindsided investors who had expected long-time front-runner and Deputy Governor Masayoshi Amamiya to succeed Haruhiko Kuroda. Amamiya refused to take the post, the Nikkei newspaper reported.
The yen initially rose on media reports of Ueda’s selection as markets decided he would prove more hawkish than Amamiya at a time when the BOJ is under pressure to restrain its ultra-easy monetary policy.
Those gains were trimmed after Ueda said the BOJ’s stimulus should stay in place.
“The Bank of Japan’s current policy is appropriate and monetary easing needs to be continued at this point,” he told reporters as broadcast by NTV.
The choice suggests that while Kishida is seeking some change at the BOJ, he’s not seeking a drastic pivot.
“The market was completely taken by surprise,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. “Putting aside what kind of policy Ueda will take, the way the government has handled this seems a bit clumsy, having raised expectations that Amamiya will succeed.”
Kuroda’s tenure is set to expire in April after the longest stint at the helm of the central bank in its 140-year history.
After such a long period of stability in the BOJ governorship, the change of leadership is stoking market speculation that an adjustment of the policy path favoring massive stimulus could be in the works.
Inflation is already twice the central bank’s target and market pressure on its bond yield cap is already seen to have prompted a doubling of the permitted movement range. The BOJ has repeatedly said that stronger wage growth is needed to support inflation before it can pull away from its stimulus program that keeps yields at ultra-low rates to spur prices and growth.
Many market players recalling the abrupt collapse of Australia’s yield curve control in late 2021 remain unconvinced that the framework can stay intact. The BOJ spent more than 20 trillion yen ($153 billion) buying bonds in January alone to keep yields in line.
As the BOJ transitions to a new leadership, Kuroda’s two deputies will also be replaced. The nominations for the three positions are due Tuesday.
Shinichi Uchida, the BOJ’s executive director in charge of monetary policy, and Ryozo Himino, former head of Japan’s financial watchdog, were picked for the two deputy governor positions, according to the people.
The selection of Uchida, who has worked closely with Amamiya to conduct Kuroda’s monetary easing, would show the top leadership will still have a veteran central banker associated with the stimulus program of the last decade.
Nevertheless, the selection of three men to take on the leadership roles, once again brings Japan’s commitment to gender equality into question after heightened expectations that at least one of the positions would go to a woman.
The new deputies will assume their roles from March 20 once approved by parliament. Given Kishida’s majority in both houses, his choice is almost certain to be approved.
Ueda, 71, a professor at Kyoritsu Women’s University, was a BOJ board member from 1998-2005 when the central bank introduced a zero interest rate policy for the first time and embarked on quantitative easing.
He voted against pulling away from the zero rate in August 2000, though the central bank went ahead any way.
What Bloomberg Economics Says...
“We don’t think he would make an immediate push to jettison the yield curve control policy. Rather, his leadership — if confirmed — would inject a bit more balance into policy discussions, which are currently slanted toward maintaining maximum stimulus.”
— Yuki Masujima, economist
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In a local media article last year, Ueda warned against raising rates too early. He said there wasn’t much scope for the BOJ to to increase rates, though that didn’t mean the chances were zero.
“In any case, a serious consideration will be required at some point in the future over the extraordinary monetary easing framework that has stayed in place for longer than many expected,” Ueda wrote in last year’s Nikkei article.
This idea that a reevaluation of the massive stimulus program will be needed suggests Ueda might favor a policy review in the future that paves the way for possible change.
“Ueda’s relationship with the Bank of Japan is extremely strong so this choice was likely essentially made by the BOJ,” Takahide Kiuchi, a former BOJ board member and economist at Nomura Research Institute, wrote in a report. “You can’t say Ueda is against monetary easing but compared with Kuroda’s stance, he is on the cautious side.”
Ueda holds a Ph.D. from MIT and has maintained a close relationship with the BOJ as a professor even after he left the bank. He has moderated various BOJ conferences including one in November last year about the wage-growth mechanism.
“I think Ueda is a good choice,” said Nobuyasu Atago, chief economist at Ichiyoshi Securities. “Markets will probably want to depict him as a hawk or a dove but in my opinion, he is neither of them. He is someone who looks at the reality and seeks the best policy decision.”
--With assistance from Hideyuki Sano and Constantine Courcoulas.
(Adds element on gender diversity)
©2023 Bloomberg L.P.
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