The government is set to nominate on Tuesday scholar and former Bank of Japan board member Kazuo Ueda as the central bank's next governor and seek parliamentary approval in its first leadership change after a decade marked by powerful monetary easing under incumbent Haruhiko Kuroda.
Prime Minister Fumio Kishida is also expected to choose Ryozo Himino, a former chief of Japan's financial watchdog, the Financial Services Agency, and BOJ Executive Director Shinichi Uchida as deputy governors under Ueda. If confirmed, the three will serve five-year terms.
The nominees will answer questions from lawmakers in hearings expected to be held later this month, as approval from both houses of parliament is required before the government can formally appoint them.
Financial markets will scrutinize their comments for any signs of transition from the current accommodative monetary policy that has formed a key pillar of "Abenomics," the economy-boosting program pushed by late Prime Minister Shinzo Abe.
Incumbent Kuroda's second five-year term ends on April 8, while his current deputies, Masayoshi Amamiya and Masazumi Wakatabe, will leave their posts on March 19.
While the new leadership is seen by BOJ watchers as well balanced, Kishida's selection of Ueda, when it was first reported last week, jolted financial markets, which had expected Amamiya as the most likely candidate. The yen initially spiked against the U.S. dollar but later gave up its gains as Ueda said the current monetary easing should continue.
The premier's decision apparently reflects his consideration for his own Liberal Democratic Party, which has some staunch Abenomics supporters, as well as his wish for Ueda, the 71-year-old monetary policy expert, to set the stage for future policy normalization.
The BOJ faces myriad challenges, including addressing the side effects of protracted monetary easing and financial markets ramping up pressure on the dovish central bank to tweak its policy.
Japan's inflation has been accelerating, albeit at a much slower pace than in other advanced economies, and rising prices of everyday goods are threatening to hurt consumption.
Ueda earned a doctorate in economics from the Massachusetts Institute of Technology in the United States and has taught at the University of Tokyo and Kyoritsu Women's University.
He sat on the BOJ's Policy Board between 1998 and 2005, a period marked by deflation, and contributed to the board's decision-making when the central bank adopted its zero interest rate policy in 1999 and then quantitative easing in 2001.
The BOJ's use of forward guidance, designed to help bring down long-term interest rates by its pledge to keep its policy rate low for an extended period, is widely interpreted as Ueda's idea.
One of the deputy governor nominees, Himino, 62, is known as an internationally-minded financial regulator who served as vice minister for international affairs at the Financial Services Agency before becoming its commissioner.
Uchida, 60, has years of experience planning and designing monetary policy at the BOJ, serving as executive director since 2018 under Kuroda.
The BOJ's balance sheet has swollen during Kuroda's two terms beginning in 2013, with its holdings of Japanese government bonds accounting for about half of the total state debt. In 2016, the central bank shifted to controlling bond yields by setting short-term interest rates at minus 0.1 percent and guiding 10-year yields to around zero percent to support the economy and achieve its elusive 2 percent inflation target.
The trading band for the key 10-year yield was widened in December to allow it to rise to 0.5 percent, but the decision sparked market speculation that the BOJ, despite its repeated denials, would tighten its monetary policy.
It has been aggressively buying bonds to defend the ceiling, calling into question the sustainability of the policy framework and the legitimacy of its huge presence in the bond market.
