BoJ: Kuroda to be reappointed? – Nomura

Japanese local media, Kyodo and Nikkei has reported that the government is set to re-appoint Governor Kuroda (unconfirmed), notes Yujiro Goto, Research Analyst at Nomura.

Key Quotes

“The article does not provide any sources, but this is the first media comment on the BOJ leadership nomination. The January Nikkei Quick FX investor survey showed 79% of investors expected Governor Kuroda to be reappointed. We also believe his reappointment is the most likely outcome, and this is unsurprising to us as well.”

“While uncertainty exists, Governor Kuroda’s re-appointment, if confirmed, suggests the government wants continuity of the current easing stance. Governor Kuroda said that the Bank should not now raise the 10yr target “even a bit,” sending a stronger message that the Bank would keep its current 10yr target unchanged. While his comments in Davos confused the market, his dovish stance has been firmer recently, partly because the equity market has weakened. As a result, the JGB market has been stable recently, even though fixed income volatility has risen outside Japan. This suggests investors are less concerned about the risk of an immediate policy change. We think Governor Kuroda’s reappointment would keep the JGB market calm. USD/JPY has been adversely affected by the rise in fixed income volatility, and any surprises at the moment may boost market volatility. In the current environment, we think Governor Kuroda’s reappointment will be marginally positive for yen-crosses.”

“The Kyodo article does not provide any information on the appointment of the two deputy governors. Market expectations for BOJ governor candidates, such as Mr. Honda, Mr. Amamiya, and Mr. Nakaso, are also all possible candidates for deputy governors. Among them, Mr. Honda’s appointment as the deputy governor will be the biggest surprise, and we think the appointment will be viewed as a stronger message from the government that it wants to keep the accommodative monetary policy stance. Thus, we think appointing Mr. Honda as deputy governor will be a medium-term JPY negative, but the surprise will likely increase market volatility as well. The Kyodo article says Governor Kuroda’s reappointment will be submitted to parliament by end-February and thus, the government’s decision on the two deputy governors should also be released soon (unconfirmed).”