Japan Nominating Economist Kazuo Ueda as Next BOJ Governor – Possible Shift from Ultra-Loose Monetary Policy?

On February 11, 2023, the Japanese government is expected to nominate Kazuo Ueda, an economist and former member of the Bank of Japan's policy board, as the central bank's next governor to succeed Haruhiko Kuroda. Ueda is a professor at Kyoritsu Women's University and a former Bank of Japan Policy Board member from 1998 to 2005.^[0] This news led to a surprise move in the yen as Ueda is known to advocate for aggressive monetary easing.^[1]

Prime Minister Fumio Kishida has highlighted the need for the eventual pick to possess “a high ability to understand and communicate with market participants at home and abroad.”^[2] Ueda has said that the BOJ shouldered too much of the burden of defeating deflation, and the government needed to do more.^[2] Increased inflation has caused people to consider the possibility that the Bank of Japan (BoJ) may be compelled to alter their very accommodative policy drastically, which would be one of the most significant changes in central banking in recent times.^[3]

Ueda is expected to be formally nominated by Prime Minister Fumio Kishida on February 14 and approved by parliament to take over at the BOJ in April. He is seen as more hawkish than Masayoshi Amamiya, the initial front runner for the position, and even more so than Hirohide Yamaguchi, the other name that surfaced unexpectedly late last year.^[2]

The government is also eyeing former Financial Services Agency chief Ryozo Himino and BoJ Executive Director Shinichi Uchida to fill the two positions for deputy governors.^[4] For a new governor and two new deputy governors to be officially appointed, both the House of Representatives and the House of Councillors must give their approval.^[5]

With Kuroda's five-year term scheduled to end on April 8, the market is preparing for a possible shift away from the Bank's ultra-loose monetary policy.^[6] Incoming data such as wage growth and inflation will be closely watched in the upcoming months to assess the way forward, as strong US data brings with it continued warnings of more rate hikes which tend to support USD valuations.^[7]

0. “‘Japan’s Ben Bernanke’ Shows MIT’s Sway, With Ueda Eyed for BOJ” Yahoo! Voices, 11 Feb. 2023, https://www.yahoo.com/now/japan-ben-bernanke-shows-mit-040627010.html

1. “Japan set to appoint Kazuo Ueda as next BOJ governor” Nikkei Asia, 10 Feb. 2023, https://asia.nikkei.com/Economy/Bank-of-Japan/Japan-set-to-appoint-Kazuo-Ueda-as-next-BOJ-governor

2. “Analysis | That Bird Won't Fly: There's No Hawk Coming to the BOJ” The Washington Post, 10 Feb. 2023, https://www.washingtonpost.com/business/that-bird-wont-fly-theres-no-hawk-coming-to-the-boj/2023/02/09/a2968242-a8bf-11ed-b2a3-edb05ee0e313_story.html

3. “USD/JPY Price Outlook: Japan’s PM Reveals Prerequisite for New BoJ Head” DailyFX, 8 Feb. 2023, https://www.dailyfx.com/news/forex-usd-jpy-price-outlook-japan-s-pm-reveals-prerequisite-for-new-boj-head-20230208.html

4. “Japanese yen jumps on report Kazuo Ueda will be next governor of the central bank” CNBC, 10 Feb. 2023, https://www.cnbc.com/2023/02/10/japanese-yen-jumps-on-report-kazuo-ueda-will-be-next-governor-of-the-central-bank.html

5. “Bank of Japan chief nominee to be presented to Diet on Tuesday” Nikkei Asia, 10 Feb. 2023, https://asia.nikkei.com/Economy/Bank-of-Japan/Bank-of-Japan-chief-nominee-to-be-presented-to-Diet-on-Tuesday

6. “Kazuo Ueda Nomination As BoJ Chief A Harbinger Of Policy Shift” RTTNews, 10 Feb. 2023, https://www.rttnews.com/3343504/kazuo-ueda-nomination-as-boj-chief-a-harbinger-of-policy-shift.aspx

7. “Bank Of Japan To Welcome Kazuo Ueda As Its New Governor” MENAFN.COM, 10 Feb. 2023, https://menafn.com/1105556761/Bank-Of-Japan-To-Welcome-Kazuo-Ueda-As-Its-New-Governor