Japanese yen gains as Ueda set to be named next BOJ governor

(Adds comment, U.S. data, NEW YORK dateline, byline, FX table, bullets, updates prices)

By Samuel Indyk and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) – The yen rose across the board on Friday with Kazuo Ueda reportedly set to become the next Bank of Japan (BOJ) governor but pared gains after he said the central bank’s monetary policy was appropriate.

The dollar, however, trimmed losses against the yen and extended gains versus the euro after the University of Michigan surveys showed a one-year inflation outlook of 4.2%, higher than the final number in January. The overall index of consumer sentiment came in at 66.4, up from 64.9 in the prior month.

Federal Reserve Chair Jerome Powell has cited the Michigan survey’s inflation outlook as one of the indicators the central bank tracks.

In Japan, the Nikkei had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging as markets anticipated a possible earlier end to ultra-loose monetary policy.

But in comments streamed online by Nippon TV, Ueda said the central bank’s current easy monetary policy was appropriate and that it should continue, prompting some of the earlier yen strength to be reversed.

Japanese Prime Minister Fumio Kishida said the government is planning to present the BOJ governor nominee to parliament on Tuesday, but did not answer a question on whether Ueda would be put forward.

“It is truly up in the air if major hawkish changes are coming to the BOJ,” said Juan Perez, director of trading at Monex USA in Washington. “We are seeing the buck pulled in different, but the yen is up on the potential for contractionary policy action.”

The dollar sank as low as 129.8 yen, a one-week trough, and was last down 0.5% at 130.92 yen.

The euro and sterling both fell more than 1% against the Japanese currency and were last down roughly 0.8% at 140.13 yen and 158.23 yen, respectively. The Australian dollar fell 0.5% to 90.78 yen.

The BOJ shocked markets in December when it raised the cap on 10-year government bond yields to 0.5% from 0.25%, doubling the band it would permit above or below its target of zero.

Since then, speculation has gathered pace that the BOJ could adjust or scrap its yield curve control policy, even though it refrained from any changes at its last meeting.

BOJ deputy governor Masayoshi Amamiya had been the front-runner to replace incumbent governor Haruhiko Kuroda, but the Nikkei reported that he had declined the job.

James Malcolm, head of FX strategy at UBS, said Ueda’s prospective nomination should be perceived as a “hawkish” outcome, given Ueda’s previous criticism of the BOJ’s monetary policy as far back as 2016.

“I’m surprised that dollar-yen is not at 129 already,” Malcolm said.

“Maybe that’s just a result of people not knowing who these characters are. To me, this is as hawkish an outcome as having Mr. Yamaguchi in the governor role.”

Hirohide Yamaguchi, a former BOJ deputy governor, was also in the running for the top job and has previously been a vocal critic of the BOJ’s stimulus programme.

The dollar index, which measures the greenback against the yen and five other currencies, was up 0.1% at 103.32. For the week, the index is on track for a 0.4% gain, which would be its second straight positive week and a run it has not had since October.

“We are on the side of the buck trending downward as the year progresses, but don’t forget the upswings and resistance as some chaos develops here and there,” said Monex’s Perez.

The pound was flat at $1.2112 after Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022.

The euro fell 0.4% to $1.0699 and was set for a second straight week of losses.

Meanwhile, the Norwegian crown strengthened against the euro, which dropped 0.8% to 10.8382 after Norway’s core inflation rate jumped in January to its highest level on record.

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Currency bid prices at 10:21AM (1521 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.3100 103.2000 +0.13% -0.174% +103.5400 +102.8900

Euro/Dollar $1.0700 $1.0739 -0.36% -0.14% +$1.0753 +$1.0682

Dollar/Yen 131.1350 131.5300 -0.30% +0.02% +131.8650 +129.8000

Euro/Yen 140.32 141.27 -0.67% +0.01% +141.4900 +139.5700

Dollar/Swiss 0.9227 0.9221 +0.05% -0.23% +0.9245 +0.9200

Sterling/Dollar $1.2113 $1.2119 -0.04% +0.17% +$1.2138 +$1.2080

Dollar/Canadian 1.3348 1.3455 -0.79% -1.48% +1.3472 +1.3345

Aussie/Dollar $0.6942 $0.6937 +0.09% +1.86% +$0.6960 +$0.6911

Euro/Swiss 0.9871 0.9902 -0.31% -0.24% +0.9906 +0.9869

Euro/Sterling 0.8831 0.8860 -0.33% -0.15% +0.8872 +0.8824

NZ $0.6331 $0.6327 +0.06% -0.29% +$0.6346 +$0.6304

Dollar/Dollar

Dollar/Norway 10.0955 10.1765 -0.43% +3.25% +10.2150 +10.1130

Euro/Norway 10.8078 10.9283 -1.10% +2.99% +10.9540 +10.8095

Dollar/Sweden 10.4073 10.3427 +0.28% +0.00% +10.4565 +10.3043

Euro/Sweden 11.1371 11.1063 +0.28% -0.11% +11.1785 +11.0620

(Reporting by Samuel Indyk in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Harry Robertson in London and Ankur Banerjee in Singapore; Editing by Mark Potter, Kirsten Donovan and Jonathan Oatis)