After the official announcement that Kazuo Ueda was nominated to succeed outgoing Governor Haruhiko Kuroda, former Vice Minister of Finance of Japan Eisuke Sakakibara said that the Bank of Japan may be forced to move to tightening monetary policy in the 4th quarter, given the rise in inflation in the country. Kuroda, who has headed the Bank of Japan since 2013, will step down in early April.
Sakakibara added that an interest rate hike should provide significant support to the yen, and could cause USD/JPY to fall to about 120.
Meanwhile, traders believe that under the new head, the Bank of Japan will start raising rates around July. Ueda, a former professor at the University of Tokyo, is a well-known expert in the field of monetary policy. He joined the Board of Governors of the Bank of Japan in April 1998 and remained on it until April 2005. Ueda has been the subject of intense scrutiny since his appointment was announced on Friday, with investors analyzing his previous publications in an attempt to get an idea of his views on the prospects for monetary policy. However, Ueda said on Friday that the central bank's monetary policy is adequate.
"Japan has “definitely” come out of deflation, and price growth is likely to be around 2% for some time. First, they will stop easing monetary policy and gradually move to tightening," Sakakibara said.