The Japanese government on Tuesday presented Kazuo Ueda to parliament as its nominee for the next Bank of Japan governor, putting the academic and former member of the BOJ's decision-making body forward to replace Haruhiko Kuroda in its first leadership change in a decade.
The new leadership is seen as attuned to the daunting challenges facing the central bank, from addressing the side effects of years of monetary easing under Kuroda that has distorted bond markets and expanded the BOJ's balance sheet to paving the way for future policy normalization.
After his surprise nomination was reported last Friday, Ueda, 71, has said the BOJ's current policy is appropriate and monetary easing should continue for a while. Still, financial markets continue to weigh his policy stance and are on alert against any hints of policy change once he takes the helm in April.
Ueda's nomination, along with those for two deputy governors, Ryozo Himino, a former commissioner of the Financial Services Agency, and Shinichi Uchida, an executive director at the central bank, is expected to be approved by mid-March, on the back of the majority control of the ruling parties.
"I will answer various questions in parliament," Ueda told reporters.
A date for their parliamentary hearings, however, has yet to be fixed, as opposition parties protested that the names were reported in the media in advance.
Both houses of parliament must approve the nominees before the government of Prime Minister Fumio Kishida can formally appoint them for five-year terms.
Ueda, who taught in the Faculty of Economics as a professor at the University of Tokyo, would be the first governor in postwar Japan to have spent most of his adult life in academia, in stark contrast with the U.S. Federal Reserve, which has been chaired by academics such as former Princeton University professor Ben Bernanke.
The BOJ, the most dovish central bank among the Group of Seven nations, faces market pressure to tweak its policy. Ueda's comments in parliament will be scrutinized for any signs of a transition from the current accommodative monetary policy that has formed a key pillar of "Abenomics," the economy-boosting program pushed by late Prime Minister Shinzo Abe.
Kuroda's second five-year term ends on April 8 after a decade marked by powerful monetary easing, while his current deputies, Masayoshi Amamiya and Masazumi Wakatabe, will leave their posts on March 19.
Kishida's decision apparently reflected the staunch support for Abenomics among some of his Liberal Democratic Party lawmakers, as well as his desire for monetary policy expert Ueda to utilize his knowledge and expertise to lead the central bank through one of the most difficult times.
Amamiya, the current deputy governor, was expected by financial markets to be the most likely candidate. The yen initially spiked against the U.S. dollar when news broke last week that Ueda would be nominated, but later gave up its gains as the scholar said monetary easing should continue for a while.
Inflation in Japan has been accelerating, albeit at a much slower pace than in other advanced economies, and rising prices for everyday goods are threatening to hurt consumption.
Ueda earned a doctorate in economics from the Massachusetts Institute of Technology in the United States and is currently teaching at Tokyo's Kyoritsu Women's University.
Incumbent Bank of Japan Gov. Haruhiko Kuroda (L) and Kazuo Ueda (R) attend a symposium on May 20, 2016, in Sendai, Miyagi Prefecture. (Kyodo)
He sat on the BOJ's Policy Board between 1998 and 2005, a period marked by deflation, and contributed to the board's decision-making when the central bank adopted its zero interest rate policy in 1999 and then quantitative easing in 2001.
The BOJ's use of forward guidance, aimed at helping to bring down long-term interest rates with a pledge to keep its policy rate low for an extended period, is widely interpreted as Ueda's idea.
One of the deputy governor nominees, Himino, 62, is known as an internationally-minded financial regulator who served as vice minister for international affairs at the Financial Services Agency before becoming its commissioner.
Uchida, 60, has years of experience planning and designing monetary policy at the BOJ, serving as executive director since 2018 under Kuroda.
The BOJ's balance sheet has swollen during Kuroda's two terms beginning in 2013, with its holdings of Japanese government bonds accounting for about half of the total state debt. In 2016, the central bank shifted to controlling bond yields by setting short-term interest rates at minus 0.1 percent and guiding 10-year yields to around zero percent to support the economy and achieve its elusive 2 percent inflation target.
The trading band for the key 10-year yield was widened in December to allow it to rise to 0.5 percent, but the decision sparked market speculation that the BOJ, despite its repeated denials, would tighten its monetary policy.
It has been aggressively buying bonds to defend the ceiling, calling into question the sustainability of the policy framework and the legitimacy of its huge presence in the bond market.