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How the BOJ Gets a New Governor and Why It Matters

The Bank of Japan (BOJ) headquarters in Tokyo, Japan, on Sept. 27, 2021. The Bank of Japan will release its quarterly Tankan business sentiment survey on Oct. 1. (Bloomberg)

Bank of Japan Governor Haruhiko Kuroda is due to step down in April after the longest stint at the helm of the central bank in its 140-year history. Kuroda has spearheaded the most ambitious monetary stimulus program of modern times, with measures that have turned the bank into the largest owner of stocks and government bonds in Japan and made it the last major anchor of ultra-low interest rates in the world. The BOJ’s first change of guard in a decade could have wide-reaching ripple effects in global financial markets if investors sense a potential change in that policy.

1. How will Kuroda’s successor be chosen?

Prime Minister Fumio Kishida makes the nomination and then seeks approval from both houses of parliament. Hours of hearings will take place soon after Kishida makes his call, but the ruling coalition’s obvious majority in both houses means his decision is unlikely to be blocked. It’s during those hearings, as lawmakers assess the candidate’s suitability for the post, that traders will get a picture of the would-be governor’s policy direction. After his nomination, Kuroda clearly indicated his intention to take quick easing action, without giving the specifics of what policy tools he would use.

2. What are the considerations for Kishida?

This choice of BOJ governor is likely to be one of the most important decisions of his premiership, offering him a chance to showcase a clear policy direction that shores up his leadership after falls in his public approval rating. Former Prime Minister Shinzo Abe used his selection of Kuroda in 2013 to demonstrate his determination to proceed with aggressive monetary easing, but Kishida is expected to play it safe by not changing the status quo too drastically. He may have to listen to opinions from senior members of his party whose views don’t necessarily match his due to his shrinking political capital, as public support falters and cabinet members are forced to quit over scandals. In October he unveiled a larger-than-expected economic package after he reportedly faced some pressure from within his Liberal Democratic Party to spend more. Ultimately, Kishida has a chance to change things, but may opt for whoever’s viewed as a safer pair of hands given his current circumstances.

3. When will the nomination come? 

Kuroda’s term officially ends April 8, 2023, so the nomination usually comes early in the year to allow for hearings and avoid a vacuum. The regular parliamentary session starts in January. Around half of 48 BOJ watchers polled in October by Bloomberg expect the nomination to come in January or February. About a fifth said it would happen earlier, in December. Because the choice itself can move markets, the decision process is often kept highly secret. Local media clearly began to report that Kuroda was Abe’s choice less than a week before the official nomination was made on Feb. 28, 2013.

4. Who are the likely candidates?

The frontrunners at the moment are Deputy Governor Masayoshi Amamiya and former Deputy Governor Hiroshi Nakaso. If either is chosen, that means the position returns to a veteran central banker for the first time in a decade. Kuroda, a former finance ministry official, took over from long-time BOJ official Masaaki Shirakawa, whose stint was criticized by lawmakers, market players and corporate executives for repeatedly doing “too little, too late.” Picking either Amamiya or Nakaso would continue a loose tradition of alternating the post between a finance ministry official and an ex-central banker. Either way, given Kuroda has indicated policy adjustments are unlikely to come before the end of his tenure, investors are watching to see if a new governor may bring change. That could come in the form of tweaking the current framework or discarding Japan’s position as the last major central bank in the world to stick with negative rates. Either move might change a trend of weakness in the yen partly driven by Kuroda’s easing stance.

5. Are any female candidates on the radar?

Economists see Yuri Okina, a former BOJ official and the chair of the Japan Research Institute, as a top contender to take one of the two deputy positions. The BOJ has never had a female governor or deputy, making it an outlier on diversity as well as monetary policy. The Federal Reserve has already had Chair Janet Yellen, while President Christine Lagarde currently helms the European Central Bank. The BOJ ranked 142nd among central banks on an index of gender equality this year.  

More details on candidates can be found here.

6. Are the deputy governors picked in the same way?

Yes. Kishida will probably nominate two candidates to replace Amamiya and Masazumi Wakatabe, whose terms both end on March 19. One factor to watch is the balance within the top three positions. It’ll work out nicely for the BOJ if Kishida fills two of the positions with current or former central bank officials as it consolidates power among insiders, making for a smoother transition of the top brass. However, the BOJ leadership usually includes a former finance ministry official, a private sector economist or an academic. 

• A Bloomberg story on Kuroda’s determination to keep easing until stable inflation is achieved.

• A Bloomberg survey of BOJ watchers asking who is going to be the next governor and deputies.

• Japan’s key price measure is showing the highest level of inflation in four decades, making the BOJ’s task of communicating the need for monetary easing more challenging.

• Bloomberg Economics shares its view on candidates for the next BOJ governor.

• A Bloomberg article on Kishida’s deepening political struggle.

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