BoJ: Reflationist as deputy governor? - Nomura

Takashi Miwa, Research Analyst at Nomura, points out that reports suggest that Haruhiko Kuroda will be reappointed as BOJ governor  as major domestic newspapers (including the Nikkei on 10 February) have been reporting that PM Shinzo Abe would propose reappointing BOJ Governor Haruhiko Kuroda to the Diet as early as this month.

Key Quotes

“PM Abe has previously commented that he trusts Kuroda’s ability, and with a Bloomberg survey carried out on 15-17 January also pointing to Kuroda as the most promising candidate, we are unsurprised by these most recent reports.”

“Reduced prospects for early normalization

• Speculation has emerged in some corners of the market since the end of 2017 that the BOJ could undertake early normalization of its accommodative monetary policy. In the abovementioned Bloomberg survey, 20 out of 43 respondents anticipated a move towards tightening within 2018, with the BOJ expected to raise its 10-year JGB yield target in particular. However, the reappointment of Kuroda as BOJ governor would appear to work against such an outlook.”

“Next focus: prospects for appointment of reflationist as deputy governor

• We note that media coverage on 10 February made no mention of deputy governor candidates. We believe that a pick for deputy governor is likely to be submitted to the Diet at the same time as that for the main job (reportedly within the month), meaning that it is just a matter of time until a probable candidate emerges. With current BOJ Deputy Governor Kikuo Iwata having expressed doubt that he will be kept on after his term ends during a speech on 31 January, we believe the next point of focus will be whether his successor is a reflationist. Should his successor turn out to be a die-hard reflationist (an advocate for expeditiously achieving the BOJ’s 2% inflation target via large-scale easing), then we believe prospects for early normalization could dip even further.”