© Reuters. FILE PHOTO: A man walks outside the Bank of Japan headquarters in Tokyo, Japan January 18, 2023. REUTERS/Issei Kato/File Photo
Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) – Japan’s government is expected to name academic Kazu Ueda as its choice for the next central bank governor on Tuesday, a surprise choice that could boost chances of ending its unpopular yield control policy.
Ueda, a 71-year-old former member of the Bank of Japan’s policy committee and an academic at Kyoritsu Women’s University, will succeed incumbent President Haruhiko Kuroda, whose second five-year term ends on April 8.
Prime Minister Fumio Kishida’s government is expected to present its nomination to both houses of parliament on Tuesday.
The expected appointment of Ueda, first reported by the newspaper and confirmed by Reuters on Friday, surprised many investors who had expected the job to go to a career central banker like Deputy Governor Masayoshi Amamiya.
The government is also to appoint Ryozo Himino, the former head of Japan’s banking watchdog, and BOJ director Shinichi Uchida as deputy governors, the sources told Reuters.
They will replace incumbents Amamiya and Masazumi Wakatabe, whose five-year terms end on March 19.
Nominations require the approval of both houses of parliament, which is effectively a foregone conclusion since the ruling coalition has a solid majority in both houses.
Candidates for governor and lieutenant governor will testify at confirmation hearings on February 24 for the lower house and February 27 for the upper house.
With inflation exceeding the BOJ’s 2% target, Ueda faces the delicate task of normalizing its long-running ultra-easy policy that has drawn increasing public criticism for distorting market function and eroding bank margins.
The leadership transition marks a historic end to Kuroda’s 10-year monetary experiment that sought to shock the public out of a deflationary mindset and could finally bring Japan in line with other major economies toward higher interest rates.
International markets have been watching Kishida’s selection as the next BOJ governor closely for clues on how soon the bank might phase out its yield curve control (YCC) policy.
Inflation hit 4% in December, doubling the BOJ’s 2% target, pushing up bond yields and challenging its determination to defend the YCC, a policy that places a 0.5% ceiling on 10-year bond yields.
As markets shriek under the BOJ’s heavy-handed intervention, many investors are betting the central bank will start raising rates under Kuroda’s successor.
In an article in the Nikkei last July, Ueda warned against raising rates prematurely in response to inflation fueled largely by cost-cutting factors.
But he also wrote that the BOJ must eventually consider how to exit its ultra-loose policy, pointing to potential downsides of the YCC such as the difficulty of maintaining a yield ceiling when inflation rises.