Excitement about an imminently more pro-active BoJ might take a bit of a tumble on this news out of Tokyo late yesterday.
From the Japan Times:
The Democratic Party of Japan said Tuesday it will support Asian Development Bank President Haruhiko Kuroda as the next Bank of Japan governor but will oppose Gakushuin University professor Kikuo Iwata’s nomination as one of the two BOJ deputy governors because of his extreme stance on monetary policy.
Well, Iwata was a little more controversial, sure. But even that ‘support’ for Kuroda might not be quite as clear cut as it sounds.
(Spoiler: it’s still more likely than not he’ll get the nod.)
The DPJ has indicated before that it doesn’t want a repeat of 2008, when it blocked the government’s nomination for BoJ governors and both deputies, meaning a caretaker governor had to be appointed for several weeks.
The Diet votes on the nominations on Thursday — but it may not be all over then.
From JT again, reporting on comments from DPJ policy chief Mitsuru Sakurai:
Sakurai added, however, that the DPJ was not satisfied with Kuroda’s remarks during Diet confirmation hearings, particularly regarding how the BOJ can achieve its 2 percent inflation target, warning his party could oppose Kuroda’s nomination when Diet approval is required again next month. Because Shirakawa is stepping down early, his successor would only technically be allowed to serve until the incumbent’s term officially ends on April 8, then face re-election to the post.
Over to Nomura’s Shuichi Obata on the prospects for Kuroda and the two deputies getting the required political support:
Between them, the LDP and the New Komeito have more than a two-thirds majority in the Lower House. However, they have only 102 seats in the Upper House, 16 short of the 118 they need for a majority (six
seats are vacant) (Figure 1). They will therefore need the support of some opposition members in the Upper House to get their proposals passed. At present, Your Party (12 seats in the Upper House) is in favor of Kikuo Iwata as governor but opposed to the other candidates, and it remains to be seen how cooperative they will be. It is also unclear whether the DPJ will impose a party whip or give its members a free vote. We will therefore be paying close attention to how opposition parties react, including DPJ voting patterns.
Another quick skeptical note here from Bank of Tokyo-Mitsubishi’s Derek Halpenny who thinks the LDP will be within a whisker of the required number of votes to ensure success for Iwata in the Upper House anyway (our emphasis):
The other element of uncertainty highlighted yesterday was the comment from DPJ Policy Chief Sakurai that the DPJ held the right to reject Kuroda at his second nomination vote. Because Governor Shirakawa’s term does not formally end until 8th April (5yrs from his start), Kuroda must be voted in twice – once to replace Shirakawa through to 8th April and then again for his own 5yr term. However, this comment by the DPJ is more of an empty threat. Will the DPJ reject Kuroda and then watch the yen surge in value and watch the Japanese equity markets tank ahead of the Upper House elections this summer? No, of course not. So notwithstanding the political posturing, these votes will proceed as expected.
From Nomura again, with the bad news highlighted (emphasis ours):
We do not think it will be particularly difficult to get these appointments approved, and think that the BOJ could well decide on additional monetary easing at its next policy board meeting in April even if one of the deputy governor posts remains vacant. However, the fact that the markets have gotten so far ahead of themselves in their expectations of major monetary easing raises the risk of future, albeit perhaps temporary, market turbulence.
As we’ve said a few times, it’s still all about expectations. A delicate business indeed.
The FX markets don’t seem to be freaking out, at least so far. The 1-day chart shows a slight yen strengthening but not much in the scheme of things: