VIEW: Barclays: Less Dovish Board Incoming

Barclays note that “the government has nominated Hajime Takata and Naoki Tamura to replace BoJ Policy Board members Goushi Kataoka and Hitoshi Suzuki when they finish their five-year terms in July. In contrast with Kataoka, who has built a reputation as an extreme reflationist, Takata appears constructive on longer-term normalization, including the notion of more flexible inflation targeting, while Tamura is expected to stress the negative side effects of the prolonged low interest rate environment, suggesting the overall balance of the Policy Board could become less dovish after the personnel changes take place.”

• “We see PM Kishida diverging from the policy stance of former PMs Abe and Suga, who pursued reflationist polices revolving around extraordinary easing, including the BoJ’s effective finance of the fiscal deficit. In our view, Kishida is more oriented toward fiscal balance and his nominations this time around might be viewed as an attempt to restore some flexibility around monetary policy with an eye to future normalization.”
• “Even assuming the above changes in the distribution of Policy Board members, we expect the BoJ to stick with its current monetary easing in the near term. With financial conditions tightening (equities selling off, JPY appreciating) amid mounting geopolitical risk, we believe the BoJ will give priority to suppressing such moves and keeping conditions accommodative by clarifying its intention to continue easing. Assuming perennial dissenter Kataoka is replaced by Takata, we would expect executive proposals to stick with the current easing program to start receiving unanimous support from the September MPM.”