© Reuters. FILE PHOTO – Tokyo Global Financial City Organization President Hiroshi Nakaso attends a meeting with Tokyo Governor Yuriko Koike, City of London Mayor Vincent Keaveny and other delegates at the Tokyo Metropolitan Government Office Building in
Tetsushi Kajimoto and Leika Kihara
TOKYO (Reuters) – The race to lead the Bank of Japan came back under market scrutiny after Hiroshi Nakaso, seen as a strong candidate to be the next governor, said he had taken over as head of the Asia-Pacific Economic Cooperation (APEC) advisory council.
While it was unclear how Nakaso’s move might affect the appointment of the next BOJ governor, it comes as Prime Minister Fumio Kishida’s administration is intensifying its search for a successor to current governor Haruhiko Kuroda.
“I am a member of ABAC, the APEC Business Advisory Council, a private sector panel, which will deal with the issue of transition financing. I will serve as the chairman of the working group which will deal with the financial issues,” Nakaso told a fintech symposium late Thursday.
“I will do my best to achieve valuable results,” said Nakaso, who is also chairman of the Tokyo Global Financial City Organization, a group of public and private entities working to raise Tokyo’s profile as a financial center.
He did not mention monetary policy or the process of electing the next central bank governor.
The remarks prompted some market players to bet that Nakaso, who people close to him say is enjoying life outside the BOJ, has dropped out of the race to lead the central bank.
A career central banker who served as deputy governor until 2018, Nakaso has repeatedly warned of the downsides of prolonged monetary easing, such as the distortion his massive presence could create in bond and money markets.
“It’s hard to believe that Nakaso will be nominated as the next BOJ governor, after announcing that he has taken on an important international role,” said Ryutaro Kono, chief economist at BNP Paribas ( OTC: ) and a veteran BOJ watcher.
Kuroda said he would not seek re-appointment after his second, five-year term expires on April 8. The mandate of his two deputies will also expire on March 19.
AMAMIYA REMAINS THE MARKET FAVORITE
Markets are closely watching the BOJ succession race for clues on how quickly the central bank might phase out Kuroda’s radical stimulus program, as inflation rises and markets crunch under the weight of the BOJ’s massive asset purchases.
Nakaso is seen as more hawkish on monetary policy than current BOJ deputy governor Masayoshi Amamiya, who is also seen by markets as a front-runner to be the next governor.
The choice of former BOJ deputy governor Hirohide Yamaguchi, who is also considered a candidate, could be the most moving in the market as he recently called for lifting the cap on the bank’s bond yields.
Finance Minister Shunichi Suzuki declined to comment when asked at a briefing on Friday whether Nakaso’s assumption of the ABAC job increased the chances of Amamiya becoming the next BOJ governor.
Nothing has been confirmed, Suzuki said.
Noriatsu Tanji, chief bond strategist at Mizuo Securities, said the chance of Nakaso becoming the next BOJ governor is now only 5%. He sees a 40% chance of Amamiya getting the job, followed by a 30% chance of Yamaguchi getting the job.
“If Amamiya is selected, the initial reaction would be for interest rates to fall somewhat, as that would give the markets a reaction that the BOJ’s current policy will be maintained,” he said.
The government is expected to present its candidate for the next BOJ governor to parliament this month.
ABAC is a private sector advisory council made up of business executives that submits proposals to the APEC summit, which this year is chaired by the United States.