MNI INSIGHT: Clues To Future BOJ Policy Due In March And July

Naming a new board member in July and whether a steady-hand executive is re-appointed in March will offer the first clues on how the government led by Prime Minister Fumio Kishida will shape the Bank of Japan, MNI understands

The first decision is over the future of executive director in charge of monetary policy, Shinichi Uchida, whose term ends on March 31, which could be extended, after a board recommendation, by Finance Minister Shunichi Suzuki. Uchida has managed monetary policy under Governor Haruhiko Kuroda and is fully aware of monetary policy views.

One possibility is that Uchida is re-appointed as a steady hand over Japan's upcoming Upper House election period and gets a shot at a board role in March 2023 when two slots are slated for reviews.

The appointment is important because the government, elected in late 2021, is watching the currency and economy under a growing Omicron variant spread closely ahead of this summer's vote and may want the BOJ to be more aggressive even with a target of 2% sustained inflation unlikely soon under current easy policy, MNI INSIGHT: BOJ Sees 2% Price Target Nearer With Wages Key.

One factor that will be critical for the BOJ and the government is whether wages rise enough to spur increases in retail prices and whether tweaks to policy in the near-term could help.

A DOVE

One of four reflationists on the board, Goushi Kataoka, ends his term on July 23 and is not expected to be re-appointed. Failure to appoint another reflationist could be seen as a signal on policy views.

The choice is crucial with some observers suggesting the decision will point to how the Kishida government views policy flexibility ahead. Any change would come in early 2023 in what market players said would be potential tweaks to a January 2013 joint statement by the finance ministry and BOJ on overcoming deflation and achieving sustainable economic growth.

Former finance minister Taro Aso, who signed the 2013 statement, has previously said that only the BOJ and financial media dwell on the current 2% price target and there are no Japanese citizens upset it has not been achieved.

Kuroda, whose term expires in April of 2023, is expected to stick with current easy policy to the end of his term.

Naming Masayoshi Amamiya, or Hiroshi Nakaso, as successor to Kuroda could depend on whether the Kishida-led government wants to stick to the 2% inflation target policy course or make changes, a former BOJ official has said.

Amamiya, whose term expires in March 2023, is the favourite to become the next governor, while former deputy governor Hiroshi Nakaso is another candidate and a key supporter of Kuroda over the previous five-year term.