The government plans to submit its BOJ governor and deputy governor nominations to the Diet on 14 February. On the 10th, the Nikkei reported that economist Kazuo Ueda, a former BOJ Policy Board member, has been selected as the governor nominee. Four days earlier, the Nikkei had reported that government officials had spoken to BOJ Deputy Governor Masayoshi Amamiya about being appointed governor, but Amamiya reportedly demurred. The government then decided to nominate Ueda for the post. With other media outlets likewise reporting that Ueda will be the nominee, the Nikkei’s report seems quite credible. Additionally, the media have reported that BOJ Executive Director Shinichi Uchida and former FSA commissioner Ryozo Himino will be nominated as deputy governors.

The news did not elicit any notable response from financial markets except for modest yen appreciation. Financial markets believe Ueda will be fairly cautious with respect to monetary easing but they do not consider him to be too hawkish.

Ueda was on the BOJ Policy Board when the BOJ first adopted a ZIRP in 1999. At the time, he was a key architect of ZIRP’s theoretical underpinnings, specifically the policy duration effect, which means a central bank’s commitment to keeping its policy rate at the zero bound for an extended period should induce a decline in long-term rates. As such, Ueda can hardly be characterized as averse to monetary accommodation. However, his approach to monetary policy is a far cry from the Kuroda BOJ’s monetary easing program. Ueda is more cautious than Kuroda. After his term on the Policy Board ended, Ueda has continued to contribute to the BOJ through such means as advising the BOJ’s Institute for Monetary and Economic Studies and speaking at its conferences. He is an academic with very close ties to the BOJ.

Another academic reported as a candidate to succeed Kuroda is Professor Takatoshi Ito. Ito is an ideological ally of Gov. Kuroda. If Ito were to be appointed BOJ governor, he would maintain policy continuity with the Kuroda BOJ. Ueda, by contrast, is much more of a BOJ traditionalist. He will likely steer the BOJ away from the path charted by Kuroda.

While Ueda may be the first academic appointed as BOJ governor, he was essentially selected from among the ranks of BOJ insiders by virtue of his strong relationship with the BOJ. The BOJ presumably strongly supports Ueda’s nomination.

Under Ueda, the BOJ will likely course-correct by de-rigidifying and normalizing its monetary policy, but I expect it to do so cautiously pursuant to a unified consensus between the Policy Board and executive staff, making every effort to minimize adverse impacts on financial markets and financial institutions.

Meanwhile, Himino was presumably recommended for a deputy governorship by the MOF and FSA. He may be a future BOJ governor candidate.

If the Kishida Government nominates Ueda to be BOJ governor, the nomination would signal that the government is ready to move on from Kuroda’s policies. The government may also be looking to strengthen policy coordination with the BOJ.

In sum, if Ueda is the new BOJ governor, the BOJ will likely course-correct by gradually de-rigidifying and normalizing policy. However, Ueda will face a host of challenges as the new BOJ governor.

• Takahide Kiuchi

  Executive Economist