Haruhiko Kuroda’s Successor: Who Will Lead the Bank of Japan?

Haruhiko Kuroda is set to step down in April after the longest stint as governor of the Bank of Japan in its 140-year history. Kuroda has spearheaded the most ambitious monetary stimulus program of modern times, with measures that have turned the bank into the largest owner of stocks and government bonds in Japan and made it the last major anchor of ultra-low interest rates in the world. The BOJ’s first change of guard in a decade could have wide-reaching ripple effects in global financial markets if investors sense a potential change in that policy — especially following a surprising tweak in December that allowed long-term yields to rise a tiny bit more.

This article will explore the considerations for Prime Minister Fumio Kishida when choosing Kuroda’s successor, the process of how the successor will be chosen, and the likely candidates for the position.

How will Kuroda’s successor be chosen?

Prime Minister Fumio Kishida makes the nomination and then seeks approval from both houses of parliament. Hours of hearings will take place soon after Kishida makes his call, but the ruling coalition’s obvious majority in both houses means his decision is unlikely to be blocked. During those hearings, as lawmakers assess the candidate’s suitability for the post, traders will get a picture of the would-be governor’s policy direction. After his nomination, Kuroda indicated his intention to take quick easing action without giving the specifics of what policy tools he would use.

What are the considerations for Kishida?

This choice of BOJ governor is likely to be one of the most important decisions of his premiership, offering him a chance to showcase a clear policy direction that could shore up his leadership after his public approval rating falls. Former Prime Minister Shinzo Abe used his selection of Kuroda in 2013 to demonstrate his determination to proceed with aggressive monetary easing. But Kishida is expected to play it safe by not changing the status quo too drastically. He may have to listen to opinions from senior members of his party whose views don’t necessarily match his due to his shrinking political capital, as public support falters and cabinet members are forced to quit over scandals. In October, he unveiled a larger-than-expected economic package after reportedly facing pressure from his Liberal Democratic Party to spend more. Ultimately, Kishida has a chance to change things but may opt for whoever’s viewed as a safer pair of hands, given his current circumstances.

When will the nomination come?

Kuroda’s term officially ends on April 8, 2023, so the nomination usually comes early in the year to allow for hearings and avoid a vacuum. Kishida indicated in January that he would name his pick sometime in February. Some media reports flagged the chance of the nomination coming on Feb. 10. The choice itself can move markets, so the decision process is often kept highly secret. Local media began to report that Kuroda was Abe’s choice less than a week before the official nomination was made on Feb. 28, 2013.

Who are the likely candidates?

The likely candidates for the position are Kazumasa Iwata, a former BOJ deputy governor now president of the Japan Center for Economic Research, and Toshiro Muto, a former BOJ deputy governor and current head of the Dai-ichi Life Research Institute. Iwata has been a vocal advocate of aggressive easing and has urged the BOJ to target inflation higher than the current 2% goal. On the other hand, Muto has been more cautious and suggested that the BOJ should look at a range of measures to achieve its goals, including fiscal policy. There are also several other potential candidates, including current BOJ Deputy Governor Masazumi Wakatabe, former Finance Ministry official Takahide Kiuchi, and former BOJ Deputy Governor Hiroshi Nakaso.

Related Facts

• Given his current circumstances, Kishida has a chance to change things but may opt for whoever’s viewed as a safer pair of hands.
• Kuroda’s term officially ends on April 8, 2023, so the nomination usually comes early in the year to allow for hearings and avoid a vacuum.
• Kishida indicated in January that he would name his pick sometime in February.
• The likely candidates for the position are Kazumasa Iwata, a former BOJ deputy governor now president of the Japan Center for Economic Research, and Toshiro Muto, a former BOJ deputy governor and current head of the Dai-ichi Life Research Institute.

Key Takeaway

The selection of Kuroda’s successor is one of the most important decisions of Prime Minister Fumio Kishida’s premiership and could have wide-reaching ripple effects in global financial markets. Kishida may opt for a safer pair of hands given his current political circumstances, and the likely candidates for the position are Kazumasa Iwata and Toshiro Muto. The nomination usually comes early in the year to allow for hearings and avoid a vacuum, and Kishida indicated in January that he would name his pick sometime in February.

Conclusion

The selection of Haruhiko Kuroda’s successor is a decision of great importance and one that could have wide-reaching ripple effects in global financial markets. Given his current political circumstances, Prime Minister Fumio Kishida will likely opt for a safer pair of hands. The likely candidates for the position are Kazumasa Iwata and Toshiro Muto. Kishida is expected to make the nomination sometime in February, and the hearings will give traders a picture of the would-be governor’s policy direction.