MNI INSIGHT: Govt Eyes Speeding Up Search For New BOJ Governor

A strong performance for Japanese Prime Minister Fumio Kishida in upper house elections next month could prompt him to bring forward the selection process to replace Bank of Japan Governor Haruhiko Kuroda once his term expires next year, in a bid to send a signal to markets that the BOJ could adjust its extremely easy monetary policy to support the yen, MNI understands.

The yen slipped to 137 to the dollar in New York on Wednesday, its weakest since September 1998, continuing a rapid depreciation trend which the government frets is eroding corporate profits and pushing up prices of imported goods for households. But, while investors have speculated that the BOJ could adjust its yield curve control framework, by raising the upper limit of its target range from 0.25% for 10-year government bonds, so far Kuroda has held firm, for fear that tightening policy could undermine a still-weak economy. (See MNI INSIGHT: BOJ Eyes Autumn Move If Yen Steadies, Prices Rise)

If Kishida’s Liberal Democratic Party emerges victorious from the July 10 elections, it would lessen the influence of former prime minister Shinzo Abe, who has been a strong proponent of ultra-easy monetary policy, making it easier for the current government to stamp its mark on the BOJ.

CANDIDATES

Kishida calculates that an early selection of a new governor to take over the BOJ once Kuroda’s second term ends in April, as well as of replacements for two deputy governors also due to step down early next year, will send a strong signal that a change of approach is imminent, prompting investors to scale back speculation of further yen declines. BOJ Deputy Governor Masayoshi Amamiya and former deputy governor Hiroshi Nakaso are believed to be strong candidates for the top job.

But even though Kishida wants the BOJ to act to support the yen, he would not favour any rise in official interest rates, which would push up government financing costs.

Another focus will be whether Kishida appoints a woman to be one of the two new deputy governors. Tokiko Shimizu, former BOJ Nagoya branch manager, became the first female to be named one of the central bank’s six executive directors in May 2020.