BOJ governor Ueda came out today with a bold statement, at least by his standards, in saying that their upcoming policy meetings in March and April will be live. The timing of that remark says a lot as it comes after his meeting with prime minister Takaichi, as well as the report yesterday that Takaichi voiced her concerns and reluctance towards the BOJ hiking rates again.
In terms of what might trigger the BOJ to act, it is all on the spring wage negotiations. The expected wage benchmark should see the 5% level hit again, which might compel the central bank to take action. But if they are not careful enough, they might just miss their timing to do so. That as we are about to see a reshuffle in policymakers making up the BOJ board.
Current policymakers Asahi Noguchi and Junko Nakagawa will be seeing their respective term end on 31 March and 29 June respectively. And prime minister Takaichi already has lined up her candidates of choice in replacing them.
For some background, Noguchi is a dovish member but did pivot to support the last two rate hikes to bring the policy rate to 0.75%. As such, markets will be watching closely to see if he will deliver a “parting gift” in March to support one more rate hike before leaving.
As for Nakagawa, she is more of a consensus voter at the central bank. In other words, she tends to stick with the general leanings of the majority of the board at the time. So, losing her is basically losing a swing vote so to speak in supporting the majority leanings of the BOJ board. But for now, at least she will stay on until the June meeting.
So, who are the ones replacing them?
Takaichi has lined up Toichiro Asada and Ayano Sato as the replacements to both Noguchi and Nakagawa respectively.
The idea is to put Asada and Sato in place to act as block and counterweight to the more hawkish leanings that the central bank wants to pursue.
While on paper they do look like dove-for-dove replacements to Noguchi and Nakagawa, they are more reflationist in nature and that could provide some pushback against the BOJ’s plans to hike rates moving forward.
Of note, Asada ascribes to Modern Monetary Theory (MMT) and argues that that debt doesn’t matter as much as growth. In other words, the emphasis of his core principle is the necessity for coordinated fiscal and monetary policy to stabilise the economy.
As for Sato, she is more from a legal background. And while her policy leanings aren’t as clear, it is more than likely that she will favour a more institutional perspective in aligning with the government’s goal of ensuring that monetary normalisation does not stifle economic growth.
With all that in consideration, the BOJ might just be up against the clock in being able to deliver their next rate hike
