Japanese Prime Minister Mr. Abe seems to have finally made up his mind as per who to nominate as the new head of the BoJ. According to several reports over the weekend, Asian Development Bank chief Haruhiko Kuroda is the chosen one, with “several government sources” confirming the news this Sunday.
Last week, top officials said the nomination process would most likely conclude mid this week. The Yen has fallen off a cliff in interbank trading. Kuroda’s nomination would be only the first step in the process though, as the appointed nominee has to first be approved by both houses of the Japanese parliament, where the Abe's ruling party does not enjoy a majority.
As Kyodo news reports: "Kuroda, 68, is known as an advocate of Abe's aggressive monetary easing to overcome chronic deflation. Kuroda is also expected to provide the international community with a full explanation of Japan's monetary policy, which has been criticized as a measure to weaken the yen."
In a recent interview for the WSJ, Mr. Kuroda said the Yen is still over-valued. Under the nominee's view, looks like the yen has room to depreciate even more by tolerating additional monetary easing. Further disseminating his position on monetary policies, Nomura research team notes that he is likely to focus on open-ended/unlimited asset purchases of JGBs and other assets, and not to exclude any available options deemed necessary to this end. Nomura also explains that in therory, he should be against foreign bond purchases (Yen positive).
According to Nomura: "Mainichi (local media) reported that the opposition DPJ leadership is likely to accept Mr. Kuroda's nomination. All told, we think Mr. Kuroda is highly likely to become the next BOJ governor, based on recent news reports."
Nomura adds: "Compared with other BOJ governor candidates, such as Kazumasa Iwata and Toshiro Muto, Mr. Kuroda is clearly more dovish than Mr. Muto. That said, Mr. Kuroda is an ex-MOF person and thus, the announcement can be regarded as less positive for USDJPY than the nomination of Kazumasa Iwata, still slightly positive for USDJPY, perhaps worth +1% from Friday's close"
In terms of other news reports, following reports from Nikkei that Kikuo Iwata will accept BOJ deputy-governor position, Nomura says that "his nomination will be surprising, as he is one of the toughest critics of BOJ monetary policy."
Kikuo Iwata's nomination as the deputy governor, in view of Nomura, "may signal the Abe cabinet's strong will to change the BOJ by putting tough critics inside the Bank."
If confirmed, Nomura thinks "it would be an additional positive for USDJPY, on top of Mr. Kuroda's nomination as the governor." The official announcement is likely to be Wednesday or later, the bank concludes.
*Update: Japan’s economy minister Amari, who is speaking in Tokyo to reporters, is putting in doubt the early rumours floating the markets, after saying he is not aware whether or not Mr. Kuroda will be the BOJ nominee chosen by Mr. Abe. Also. Mr. Suga, Japan’s Chief Cabinet Secretary, crossed the wires to say that "we are not at stage where we have received replies from BOJ candidates", which somehow contradicts the headlines from the weekend.