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Who’s the New BOJ Governor?

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Overnight, there was considerable movement in the USDJPY with rampant press speculation over who would be nominated as the next governor of the BOJ. There has been a lot of anticipation about the announcement, since the new governor is expected to provide a new direction for the bank. Remember that the current governor, Haruhiko Kuroda, is expected to step down in April at the end of his term (implying just one more meeting under his leadership).

Kuroda, of course, has been a perpetual dove, keeping rates in the negative for his entire tenure, with extraordinary easing in an effort to get organic inflation to rise. Recently, global conditions have caused higher inflation, and the BOJ has had to make some adjustments to its years-long stance.

The potential contenders

For a couple of months now, there has been speculation that the new BOJ governor would be more hawkish. Just as a matter of probability, simply because Kuroda is probably the most dovish central bank official around. The expectation was that he would maintain policy as is until the end of his term, but could tweak things in order to prepare the ground for his replacement. That included, studying the impact of eliminating YCC, and widening the band to allow some further appreciation in government bond yields.

One of the more cited replacements was Deputy BOJ Governor Masayoshi Amamiya, who is perhaps the only contender to equal if not beat Kuroda for dovishness. He had most recently said that he saw no need to tweak YCC policy, for example.

What caused the fire works

Last Monday, Nikkei reported that the Government was looking to nominate Amamiya for the top post at the BOJ. This would assure continuity of policy, and the markets took on a more dovish outlook for the yen. Then, on Thursday it emerged that the ruling LDP party was divided on whom to nominate for the BOJ. Mostly as there was a clear split between those who wanted to keep easing, and those who wanted the bank to tackle rising inflation. Who is confirmed as the governor would determine which of those two routes was chosen.

The big news was early this morning (for Europe and US; late afternoon for Asian traders) that Amamiya had rejected the offer to take the top spot in the BOJ. This was only reported in the press; the Finance Minister earlier in the day refused to comment on speculation, saying that he was unaware of the nomination schedule.

The state of play

Then Nikkei reported that the government was planning to nominate Kazuo Uedia, a former BOJ official who is now a professor at the University of Tokyo. Crucially, he hasn’t made any public comments on central bank policy since 2011. He might be seen as a compromise candidate, not having a public stance on the current situation. Though his last public comment was to criticize easing.

The market reacted as the BOJ tooking on hawkish turn, basically because anyone besides Amamiya was seen as relatively hawkish. At the moment, it’s still press speculation. The formal nomination hasn’t been made yet, but the expectation is that it could happen most likely on Tuesday.

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