Analysis: Prime Minister Kishida gets to work on choosing the next BOJ head

A man looks at a cell phone in front of the Bank of Japan building in Tokyo, Japan, June 16, 2017. REUTERS/Toru Hanai/File Photo

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  • Kishida Pays Attention To ‘Abenomics’ Proponents In Recast
  • Central bankers Amamiya, Nakaso top candidates for top BOJ job
  • Small chance of dark horse choice from the Ministry of Finance
  • Work on the selection of candidates to intensify in the coming months
  • Investors looking for clues as to when the ultra-simple policy will change

TOKYO, Aug. 10 (Reuters) – Now that a cabinet reshuffle has been cleared up, Prime Minister Fumio Kishida’s search for the next Bank of Japan (BOJ) governor will intensify in the coming months with a slim but possible chance of a dark horse gets the job. .

Kishida handed a number of key posts to lawmakers loyal to late Prime Minister Shinzo Abe in Wednesday’s reshuffled cabinet, a sign that he is not turning his back on supporters of aggressive monetary easing, which has been a key pillar of Abe’s “Abenomics” stimulus policy. . read more

But as years of ultra-low interest rates weigh on bank profits and limit room for further easing, Kishida is unlikely to choose radical stimulus measures. Instead, he’s opting for a pair of safe hands that could bring about an orderly exit, if any, from massive stimulus measures, analysts say.

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That leaves former BOJ vice governor Hiroshi Nakaso and incumbent vice governor Masayoshi Amamiya as strong candidates to replace Governor Haruhiko Kuroda when his second five-year term ends in April, analysts say.

With Treasury Secretary Shunichi Suzuki retaining his post, many analysts say the cabinet reshuffle will not change the dominant market view that the two will remain closest to the BOJ steering wheel.

“Looking at his personnel decisions, Kishida continues to pay attention to conservatives and supporters of Abe’s policies,” said Toru Suehiro, chief economist at Daiwa Securities.

“His priority is to find a balance between the ruling party factions. If this trend were to continue, Amamiya or Nakaso will remain top candidates as the next BOJ governor,” he said.

But there’s a slim chance, increasingly talked about in political and financial circles, that Kishida will choose a dark horse to move away from Abenomics, which has failed to deliver solid, sustainable growth in the third-largest economy. in the world.

“Amamiya and Nakaso have both served under Kuroda and may therefore find it difficult to reverse the current huge stimulus from the BOJ,” said a source familiar with the selection process.

“Someone from outside the BOJ may be better placed to review yield curve control (in the bond market),” the official said, a view shared by another source close to the administration.

If so, former Treasury Department officials are seen as possible candidates. Having ex-financial bureaucrats at the top or deputy posts will help the BOJ work closely with the ministry, which is responsible for debt issuance, to avoid a damaging spike in long-term interest rates, the sources said.

Kuroda is one of the former Treasury Department officials turned BOJ Governor with experience in currency diplomacy and tax affairs.

Former top bureaucrat of the Ministry of Finance, Toshiro Muto, who had expertise in budget preparation and was armed with strong ties to politicians, also served as BOJ deputy governor from 2003 to 2008. He served informally as a bridge between the central bank and the government on economic policy.

Former top currency diplomat Masatsugu Asakawa, currently head of the Asian Development Bank, is considered one of the candidates. He has the strong support of former finance minister Taro Aso, who as vice president of the ruling party retains strong influence over Kishida’s personnel choices.

There’s also a chance Kishida could choose a woman to head the BOJ, or to fill one of two deputy posts opening in March, to bring diversity to the male-dominated institution, two sources with connections with the administration.

Names floating in markets include Yuri Okina, who heads a private think tank and served on several government panels, and former BOJ board member Sayuri Shirai, they said.

While Shirai emphasized the benefits of maintaining the current easygoing policy, Okina in a recent interview with Reuters criticized the BOJ’s yield cap policy as a “negative spiral” of yen declines. read more

Unlike during the reins of Abe, where pro-reflationary academics swayed the choices, the Treasury Department is likely to exert significant influence over shortlisted candidates given its close relationship with Kishida’s government, government officials say.

The drafting of the list will intensify in the coming months and be completed by the end of the year, with Kishida having the final say on who will be the next governor, they say.

Regardless of who gets the highest BOJ post, any exit from the stimulus will be gradual, given the need to protect the fragile economy and curb the cost of financing Japan’s huge and growing public debt.

“As public outrage over the rising cost of living grows, Kishida could pick someone more interested in adjusting the BOJ’s ultra-loose policies” and prevent further declines in the yen from pushing up import prices, Izuru Kato said. chief economist at Totan Research.

“Nevertheless, Japan’s massive government debt leaves BOJ policy under fiscal dominance. Any exit will be an extremely narrow path.”

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Reporting by Leica Kihara; Additional reporting by Kantaro Komiya and Tetsushi Kajimoto; Editing by Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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