Yen jumps as Ueda set to be named next BOJ governor

THE yen strengthened on Friday (Feb 10) with Kazuo Ueda reportedly set to become the next Bank of Japan (BOJ) governor but pared gains after he said the central bank’s monetary policy was appropriate.

The Nikkei had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging across the board as markets anticipated a possible earlier end to ultra-loose monetary policy.

But in comments streamed online by Nippon TV, Ueda said the central bank’s current easy monetary policy was appropriate and that it should continue, prompting some of the earlier yen strength to be reversed.

The dollar sank as much as 1.2 per cent to 129.8 yen and was last down 0.5 per cent at 130.93 yen.

The euro and sterling both fell more than 1 per cent against the Japanese currency but were last down around 0.9 per cent and 0.6 per cent, respectively. The Australian dollar slipped 0.7 per cent.

The BOJ shocked markets in December when it raised the cap on 10-year government bond yields to 0.5 per cent from 0.25 per cent, doubling the band it would permit above or below its target of zero.

Since then, speculation has gathered pace the BOJ could adjust or scrap its yield curve control policy, even though it refrained from any changes at its last meeting.

BOJ deputy governor Masayoshi Amamiya had been the front-runner to replace incumbent governor Haruhiko Kuroda, but the Nikkei reported that he had declined the job.

“Markets had been expecting Amamiya to come in and pick-up where Kuroda left off,” said Simon Harvey, head of FX analysis at Monex Europe.

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“The BOJ’s exit from ultra-easy monetary policy is still highly dependent on what happens during the spring wage negotiations, but a new regime could mean there’s no love lost on the ultra-loose policy side,” he added.

Japanese Prime Minister Fumio Kishida said they’re planning to present the BOJ governor nominee to parliament on Feb 14, but did not answer a question on whether Ueda would be put forward.

James Malcolm, head of FX strategy at UBS, said Ueda’s prospective nomination should be perceived as a “hawkish” outcome, given Ueda’s previous criticism of the BOJ’s monetary policy as far back as 2016.

“I’m surprised that dollar-yen is not at 129 already,” Malcolm said.

“Maybe that’s just a result of people not knowing who these characters are. To me, this is as hawkish an outcome as having Yamaguchi in the governor role.”

Hirohide Yamaguchi, a former BOJ deputy governor, was also in the running for the top job and has previously been a vocal critic of the BOJ’s stimulus programme.

The dollar index, which measures the greenback against six currencies including the yen, was up 0.2 per cent at 103.41. For the week, the index is on track for a 0.4 per cent gain, which would be its second straight positive week and a run it has not had since October.

The pound was down 0.1 per cent at US$1.2106 after Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022.

The euro fell 0.4 per cent to US$1.0697 and was set for a second straight week of losses.

Meanwhile, the Norwegian krone strengthened against the euro to 10.893 after Norway’s core inflation rate jumped in January to its highest level on record.

“Both Norway and Sweden are in a pretty similar boat, struggling to get domestic inflation pressures under wraps,” Monex Europe’s Harvey said.

“That’s going to force them to hike rates, most likely more than they’re comfortable with, and that’s now playing out in the currency markets.”

On Thursday, Sweden’s central bank raised its key interest rate by half a percentage point to 3 per cent and forecast further tightening in the coming months to combat inflation and headwinds from a weak currency. REUTERS