Macro Insights: Bank of Japan's potential candidates for the next Governor

Charu Chanana 400x400
Charu Chanana

Head of FX Strategy

Summary:  The nominee list for the new Bank of Japan governor could be out anytime now. Market volatility has already started to kick in with this week’s media reports of Amamiya being the top choice (which were later ruled out) and PM Kishida’s comments that he does not want to surprise the markets. The consensus is therefore shifting to safe choices, leaving Amamaiya (the most dovish) and Yamaguchi (the most hawkish) candidates out of the race. There is also a possibility of a less popular or external candidate being nominated.

Reports suggest that the Japan government is expected to submit the nominees for the position of the next Bank of Japan governor to the parliament on February 10, although this may be delayed to next week as well. We list here who the possible candidates could be and how the announcement could impact the markets.

Since the December tweak in the cap for 10-year yields, speculation for the BOJ to further adjust or remove its yield curve control policy has been ripe. It’s a critical time with the appointment of new chief on the horizon, along with spring wage negotiations due in March. These event risks further enhance speculations given a clear understanding by the markets that Prime Minister Kishida would try to move away from Abenomics with the change of hands at the BOJ as he has traditionally disapproved of excessive yen depreciation and low interest environment.

While the nomination announcement is expected to create significant volatility, it is worth noting that these reactions may potentially be erased soon after. Overall, the Japanese yen has potential to outperform this year given the global yields are also coming off the global highs. Possible key contenders are listed below, along with likely market response based on market expectations of how they can tweak policy.

Masayoshi Amamiya (current Deputy Governor)

Amamiya is called Mr. BOJ as he’s a veteran at the bank. He played a key role in drafting Kuroda’s huge asset-buying programme in 2013 and consistently called for keeping ultra-low interest rates. Therefore, as hinted earlier this week with some media reports suggesting Amamiya had been approached to be the next BOJ governor, market will perceive him to be a continuation of current governor Kuroda’s policies. This could mean a weaker yen and a run higher in Japanese equities.

Hiroshi Nakaso (ex-Deputy Governor)

Nakaso is a more hawkish candidate compared to Amamiya, as he has previously highlighted the drawbacks of prolonged monetary easing and advocated the idea of an exit from ultra-easy policy in a book published in May. However, Nakaso has been an early supporter of Abenomics and is very known for his international influence. His appointment could fuel some speculation of policy tweaks by the BOJ in the coming months, support the yen and fuel gains in Japanese banks. But his choice would be less controversial than Amamiya

Hirohide Yamaguchi (ex-Deputy Governor)

Yamaguchi will potentially be the most hawkish choice for the post, as he has been highly skeptical about the effectiveness of quantitative easing. He has not only warned of the rising cost of prolonged easing, but also called for ending the BOJ’s huge asset purchases and abandoning an yield cap as he describes it as unsustainable. While he may be the perfect choice to push Kishida’s agenda, there is also a risk of possible backlash and possible political setbacks for Kishida if Yamaguchi was to be selected. His nomination could potentially result in steep gains in the yen and threaten the global liquidity as risks of Japanese outflows from foreign assets increases.

Masatsugu Asakawa (former finance ministry official)

Asakawa is known for his achievements in the early stages of Abenomics, and still a potentially hawkish candidate. He has been favourable for a weaker yen and praised Kuroda’s stimulus programme as the right move to beat deflation. His choice could be an acceptance that Kuroda’s policies were suitable, but now the environment is different and a tweak may be plausible. That is a Goldilock’s scenario for the BOJ and for Kishida.

Another neutral candidate may also be considered, given Kuroda’s comment today that he doesn’t want to surprise the markets. The consensus is therefore shifting to safe choices, leaving Amamaiya (the most dovish) and Yamaguchi (the most hawkish) candidates out of the race. Other choices like Columbia University professor Takatoshi Ito or former top currency diplomat Takehiko Nakao may also be considered.


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