Yen retreats after report Amamiya approached to become BOJ chief

THE Japanese government has approached Bank of Japan (BOJ) deputy governor Masayoshi Amamiya about succeeding Haruhiko Kuroda as head of the central bank, according to a Nikkei report that initially sent the yen tumbling.

The government is in the final stage of finalising its nominations, the report said, citing government and ruling party officials. Nikkei said a BOJ official declined to comment, saying they were unaware of the discussions.

Finance Minister Shunichi Suzuki said he hadn’t heard anything about the BOJ nomination in comments to reporters early on Monday (Feb 6), a remark that pared the slide. Amamiya didn’t respond to an inquiry from reporters about whether he was approached for the role.

Amamiya is a longtime heavyweight at the BOJ who has been instrumental in formulating the bank’s large-scale stimulus programme under Kuroda. He is seen by market players as the closest of the likely replacements to a continuity candidate.

The Japanese currency fell about 1 per cent past the 132.50 per dollar level in early on Monday trading, its lowest since Jan 12, on the assumption that ultra-easy monetary policy is more likely to endure if one of its architects succeeds Kuroda. It then regained some ground to trade around 131.75 following Suzuki’s comment.

BOJ watchers are aware that initial local media reports on BOJ personnel changes should be treated cautiously, as in the past the government went with other candidates in the face of intense criticism for leaking names to the media before an official nomination.

Prime Minister Fumio Kishida has said the nomination for central bank governor will come in February. The government will also name its nominees for two deputy governor positions.

The impending leadership change could usher in policy adjustments after years of full-bore stimulus. Speculation has simmered that such changes will accompany a new governor.

“The chances of rejecting current policy have become slim,” said Toru Suehiro, chief economist at Daiwa Securities, in a note. “While the scrapping of yield curve control is possible once the stabilisation of bond market is confirmed, a clear rate hike move like ending the negative rate seems unlikely.”

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Kuroda is scheduled to step down as governor on Apr 8 after the longest stint running the central bank in its 140-year-old history. He’s been instrumental in pushing one of the most ambitious monetary stimulus programmes of modern times — and Amamiya has been a key figure in helping design BOJ policies.

The 67-year-old Amamiya and former deputy governor Hiroshi Nakaso have been seen by economists as front-runners for the post. If either of them get the post, it would return the position to a veteran central banker for the first time in a decade. Of the two, Nakaso is seen as slightly more hawkish on policy.

Stocks may also move on the report and could get a boost as traders react to the likelihood of Amamiya’s nomination. Market participants who have been pricing in an early withdrawal of stimulus could pull those bets if they expect a delay to any policy tweaks.

Choosing Amamiya would signal Kishida’s desire both for continuity and an ability to respond to conditions with flexibility.

Deputy Chief Cabinet Secretary Seiji Kihara said on Sunday that it was important to have stability in finance and macroeconomic policies. Speaking on public broadcaster NHK, Kishida’s close aide stressed the need for stable and sustainable price growth.

Foreign investors will need to readjust their expectations of the BOJ scrapping its ultra-loose policy soon, said Dane Cekov, a senior strategist at Nordea Bank in Oslo.

“Some have hoped that the government would pick someone from the more hawkish camp, for example, Nakaso,” he said. “As such, we could see dollar-yen continue to move higher when European and US markets open.” BLOOMBERG