Japan Govt Set To Appoint Academic Ueda As Next BOJ Governor

Bank of Japan Governor Haruhiko Kuroda and Kazuo Ueda, a member of the central bank’s policy board, attend a symposium ahead of G7 Finance Ministers and Central Bank Governors’ meeting in Sendai, Japan May 20, 2016, in this photo taken by Kyodo via REUTERS

Japan’s government is likely to appoint academic Kazuo Ueda, a former member of the Bank of Japan’s policy board, as the bank’s next governor, two government officials told Reuters, a choice seen by markets as driving the bank in a more hawkish direction and boosting the yen.

Ueda, an academic at Kyoritsu Women’s University, is considered an expert on monetary policy and played a key role in battling the initial phase of Japan’s deflation with the introduction of quantitative easing (QE) and forward guidance for financial markets.

But most analysts said the appointment of the 71-year-old was a huge surprise — he was not even considered a dark horse candidate — and it was hard to tell immediately what that meant for changes, if any, in the bank’s monetary policy direction.

Investors have repeatedly tried to push up Japanese government bond yields in recent months on expectations the BOJ will start to phase out its massive stimulus programme when a new governor takes over after Haruhiko Kuroda’s second term ends in April.

While other central banks around the world have been scrambling to cool stubbornly high inflation by ramping up interest rates, the BOJ has been in no rush to change its super-loose policy stance.

The government will also nominate Ryozo Himino, former head of Japan’s banking watchdog, and BOJ executive Shinichi Uchida as deputy governors, the two officials with knowledge of the matter said, speaking on condition of anonymity as they were not authorised to speak publicly.

The Nikkei reported earlier that Ueda, Himino and Uchida will make up the new BOJ leadership.

The yen strengthened from around 131.55 yen per dollar to around 130.60 immediately after the Nikkei reported the appointments. It then extended its gains, with the dollar last down 1.2% at 129.94.

“Ueda is well-versed in interest rates. And he also has an experience of the communication struggle over the BOJ’s zero-interest rate policy when he was a board member,” said Shotaro Kugo, an economist at Daiwa Institute of Research.

“Being a theorist and practitioner at the same time would make him well positioned going forward as the BOJ enters a difficult period of (policy) normalization.”

“None of the three governor/deputy governors appear to have the (dovish) reflationist idea. I can see the government’s intention to renew the monetary policy direction from the previous one.”

The government is expected to present the nominees to parliament on Feb. 14.

In an opinion piece that ran on the Nikkei in July last year, Ueda said warned the BOJ against prematurely raising interest rates just because inflation briefly exceeded 2%.

But he also said the BOJ must consider an exit strategy from ultra-loose monetary policy, and review its extraordinary stimulus programme at some point, according to the piece.

Ueda served on the BOJ’s board from 1998 to 2005. He voted against raising interest rates to 0.25 percent from zero in August 2000, arguing that the bank could wait a while longer given limited inflation. The BOJ later reversed its decision and cut rates again.

A man walks at the headquarters of Bank of Japan in Tokyo
A man walks at the headquarters of Bank of Japan in Tokyo, Japan, January 18, 2023.