JPY’s Direction Hinges On BoJ Governor Announcement

Market Analyst
11 Jan 2023
USD/JPY has settled into a relatively tight range of late, appearing rather comfortable between 130.50 – 134.50, as the JPY consolidates after a 14% rally in the fourth quarter of last year, and ahead of the eagerly anticipated announcement of who will replace Kuroda as Bank of Japan Governor upon the conclusion of his decade-long stint at the BoJ in early-April.

While the BoJ has already made a hawkish pivot, tweaking its YCC policy to allow 10-year JGBs to trade as high as 0.5%, it is widely expected that the appointment of a new Governor will herald a further hawkish shift in the Bank’s policy stance. Said further shift will likely lead to a rate hike in the second half of the year, bringing to a definitive end the era of ultra-easy monetary policy.

Despite such a move being broadly expected, and the JPY having already rallied significantly in recent months, confirmation of a hawk being installed as Governor is still likely to be a bullish catalyst. This is even more likely in an environment where long-end Treasury yields have become trapped in a range just over 40bps wide and show little sign of wanting to take another trip towards the cycle highs seen in Q4 22. In fact, if anything, the ‘path of least resistance’ seems to be for Treasuries to rally further, given that economic momentum will continue to wane, inflation looks to have peaked, and bets on Fed loosening are set to ramp up as the year progresses.


An announcement as to the next BoJ Governor is likely towards the tail end of January, or at the beginning of February. Current frontrunners for the role appear to be Hiroshi Nakaso, a former BoJ Board member prior to the GFC, and Masayoshi Amamiya, currently BoJ Deputy Governor.

Of the two, Nakaso is clearly the more hawkish, having been with the BoJ when it ended JGB purchases in 2006, and having also recently written a whitepaper outlining how a decade of ultra-loose policy could come to an end; abandoning the 10-year yield target, to focus instead on short-term maturities, before then raising rates.

Amamiya is significantly more dovish than his main competitor for the job, having been the mastermind behind Kuroda’s initial round of JGB purchases though, admittedly, his remarks have taken on a more hawkish bent of late, increasingly focusing on the exit from the present policy stance.

Nevertheless, and while other candidates are in the mix – including Chair of the Japanese Government Pension Fund Hirohide Yamaguchi and President of the Asian Development Bank Masatsugu Asakawa – markets are unlikely to focus on the nuance around such a decision. Instead, upon the new Governor’s unveiling, traders’ attention will immediately fall on the likelihood of the appointee delivering at least one 25bps rate hike before year end.


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