TOKYO: Two Bank of Japan (BoJ) veterans continue to lead the race to replace governor Haruhiko Kuroda, as investors mull the risk of Prime Minister Fumio Kishida’s choice without jolting global financial markets.
Kuroda’s decade-long stint at the helm of the central bank comes to an end in April, with speculation simmering over the likelihood that a new governor will adjust policy away from the full-bore stimulus of the last 10 years.
Kishida has said the announcement will be made this month.
Most BoJ watchers surveyed by Bloomberg see current deputy governor Masayoshi Amamiya or his predecessor Hiroshi Nakaso as the most likely successors among a large group of possible contenders that includes another former deputy and a finance ministry official, but no women.
The BoJ’s surprise decision to tweak its yield curve control programme in December illustrated the scale of shockwaves that any hint of a policy change at the bank can trigger. With bigger changes expected under a new governor, analysts said the enormous task of pulling back from unprecedented monetary easing needs to be handled by a veteran central banker.
In the latest Bloomberg survey of BoJ watchers, Amamiya ranked as the favourite to replace Kuroda, with 25 votes out of 37 responses.
Known as “Mr BoJ,” Amamiya has long played the key role of re-imagining policy to match the changing circumstances of the time.
Bold examples of the deputy governor’s policymaking resourcefulness are the “shock and awe” quantitative easing first championed by Kuroda and the yield curve control framework that gave Kuroda’s stimulus more sustainability. He also worked with the previous governor Masaaki Shirakawa, whose policy was often criticised for being “too little, too late.” His flexibility is a key element, positioning him at the top of the list.
That suggests Amamiya, if selected, won’t simply be a continuation of Kuroda. He will likely keep an open mind and respond to the economic conditions and outlook he encounters this year and beyond.
Nakaso is chairman of the Daiwa Institute of Research and is spearheading Tokyo’s efforts to position itself as a key financial hub in Asia and efforts to promote green financing.
Nakaso served as deputy BoJ governor during Kuroda’s first five-year term, showing he is no stranger to ambitious stimulus efforts.
He is also known for his firefighting efforts during the global financial crisis.
In a 740-page book published last year, he also gives vivid descriptions of his intense battle as a central banker during Japan’s near-financial meltdown in the late 1990s.
Nakaso has chaired study groups at the Bank for International Settlements and the Group of 20, and has close ties with a wide network of global central bankers.
He would likely place more importance on the long-term health of the financial system, given his background.
Nakaso said in September that the BoJ has done more than its fair share and that “too much burden was placed on monetary policy.” In the January poll, six economists selected Nakaso.
Bloomberg economist Yuki Masujima expects Amamiya to replace Kuroda in April and maintain his former boss’ course for the time being.
“Our baseline view is that the BoJ won’t reduce stimulus until Japan achieves a recovery with sustainable wage growth. These conditions probably won’t be met until the first quarter of 2024.
Hirohide Yamaguchi served as the right-hand man under Kuroda’s predecessor Masaaki Shirakawa from 2008 to 2013, during which the BoJ faced criticism for acting too cautiously in the wake of the global financial crisis and the 2011 tsunami and nuclear disaster.
Yamaguchi’s nomination would likely fuel market speculation that Kishida is seeking a clear policy shift at the central bank after years of aggressive stimulus and bond yield control to support the economy and prices.
He currently serves as chairman of the Government Pension Investment Fund board and chairman of the advisory board at Nikko Research Centre.
In a note published in January, he said Japan’s inflation may continue to accelerate in 2023 as strong corporate earnings lead to higher wages, hinting at the scope for policy change. Three economists picked Yamaguchi in the January survey. — Bloomberg