Yen trims gains as possible next BOJ governor says current policy appropriate

By Samuel Indyk

LONDON (Reuters) – The yen strengthened on Friday, before trimming some of its gains, after Kazuo Ueda, the figure reportedly tapped as the next Bank of Japan (BOJ) governor, said the central bank’s monetary policy was appropriate.

The Nikkei had earlier reported the government would nominate academic Ueda to the BOJ’s top job, sending the yen surging across the board 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.

The dollar earlier sunk as much as 1.2% to 129.8 yen. It was last down 0.5% to 130.90 yen.

The euro and sterling both fell over 1% against the yen but were last down around 0.6% to 140.34 yen and 158.53 yen, respectively. The Australian dollar slipped 0.4%.

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 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 for the governor role, but the Nikkei reported that he had declined the job.

“Markets had been expecting Amamiya to come in and pick-up where (current BOJ governor Haruhiko) Kuroda left off,” said Simon Harvey, head of FX analysis at Monex Europe.

“The BOJ’s exit from ultra-easy monetary policy is still highly dependent on what happens during the spring wage negotiations, but a new regime could mean there’s no love lost on the ultra-loose policy side,” he added.

The government is expected to present the nominees to parliament on Feb. 14.

James Malcolm, head of FX strategy at UBS, said Ueda’s 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 it against six currencies including the yen, was last little changed at 103.17. For the week, the index is on track for a 0.2% gain, which would be its second straight positive week and a run it has not had since October.

The pound was flat at $1.2118 after Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022.

The euro was down 0.1% at $1.0726 and was set for a second straight week of losses.

Meanwhile, the Norwegian krone strengthened against both the euro and dollar after Norway’s core inflation rate jumped in January to its highest level on record.

“Both Norway and Sweden are in a pretty similar boat, struggling to get domestic inflation pressures under wraps,” Monex Europe’s Harvey said.

“That’s going to force them to hike rates, most likely more than they’re comfortable with, and that’s now playing out in the currency markets.”

On Thursday, Sweden’s central bank raised its key interest rate by half a percentage point to 3% and forecast further tightening in the coming months to combat inflation and headwinds from a weak currency.

(Reporting by Samuel Indyk and Harry Robertson in London, Ankur Banerjee in Singapore; Editing by Robert Birsel and Mark Potter)