*
Neither dove nor hawk, Ueda was the right balance for
Kishida
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PM had to pay heed to pro-growth lawmakers of Abe's camp
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Initial long list included BOJ, MOF, academics and bankers
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Amamiya declined to take job, recommended Ueda
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Trio of technocrats embark on task of ending YCC
(Adds graphic on dove-hawk composition of BOJ board)
By Leika Kihara and Tetsushi Kajimoto
TOKYO, Feb 17 (Reuters) - For Prime Minister Fumio
Kishida, Japan's next central bank chief had to symbolise a
departure from the unconventional policies of his predecessor
Shinzo Abe - but without angering pro-growth lawmakers of Abe's
powerful political faction.
The tricky task of steering the Bank of Japan (BOJ) out of
years of ultra-low interest rates without upending markets
required the skill to read markets and clearly communicate
policy intentions, both domestically and internationally.
Kazuo Ueda, a 71-year-old university professor who has kept
a low profile despite strong credentials as a monetary policy
expert, ticked some important boxes.
He was branded neither an explicit dove nor hawk. While he
was not even on the list of dark horse candidates floated by the
media, Ueda was well known in global central bank circles.
Having an academic helm the BOJ is unprecedented in Japan,
where the job traditionally rotates between a central banker and
an official from the Ministry of Finance (MOF).
But the idea found traction in Kishida's administration,
particularly as attempts to convince incumbent deputy governor
Masayoshi Amamiya, considered the top contender for the job,
failed.
The account of how Kishida chose the new BOJ leadership is
based on interviews and conversations with 15 sources, including
former and incumbent central bank and government officials,
ruling camp lawmakers, aides of Kishida, private-sector bankers
and analysts closely watching Japanese politics and policy.
Most of them spoke on condition of anonymity as they were
not authorised to speak publicly, or declined to comment on
record due to the sensitivity of the matter.
The search for a new chief began mid-last year, when Kishida
and his aides drafted a list including a range of candidates
from the BOJ, MOF, private sector and academia.
Other academics in the list included Columbia University
professor Takatoshi Ito, a close associate of Kuroda, and
University of Tokyo academic Tsutomu Watanabe, known for his
research on Japan's deflation.
The BOJ lobbied hard for a career central banker to take the
job after Kuroda, a former MOF executive, presided for a rare
second, five-year term that ends in April.
The bank's preferred choices were incumbent deputy governor
Amamiya, as well as former deputies Hiroshi Nakaso and Hirohide
Yamaguchi, given their deep knowledge on monetary policy.
Many finance ministry officials favoured Amamiya, who for
decades has cultivated good ties with the government.
But Amamiya had made clear to associates from the outset he
had no intention of taking the job, on the view he would not be
able to dismantle the stimulus he helped Kuroda create, sources
say.
"If he becomes governor, he would have had to spend five
years contradicting what he said in the past decade," said a
former MOF executive who knows Amamiya well. "That's quite
hard."
A commercial bank executive who met him late last year
recalled how Amamiya, when asked, flatly denied the chance of
becoming governor. "It struck me how he very strongly ruled out
the possibility," the executive said.
Amamiya, in fact, talked about how the BOJ needed to be like
the U.S. Federal Reserve, where academics with monetary policy
expertise take the helm and guide policy with support from
staff, say people who had interactions with him.
Kishida's administration also wanted someone who would
signal a departure from Kuroda's monetary experiment that was a
key part of his predecessor's "Abenomics" stimulus policies, and
became deeply unpopular with the public for failing to broadly
distribute wealth.
But choosing a more hawkish policymaker like Nakaso or
Yamaguchi would have drawn discontent from reflationist-minded
lawmakers from Abe's powerful faction within the ruling Liberal
Democratic Party (LDP).
That was too risky for Kishida, whose own faction is a
minority and relies on support from more powerful groups within
the LDP.
The choice of Kuroda's successor has been closely watched by
investors and the wider public as an indication of how soon the
BOJ will shift away from extremely low interest rates, a
transition that could have huge ramifications for global
financial markets.
"The prime minister probably wants a fresh face. But he also
needs to avoid giving the impression that there will be a big
change to ultra-loose policy," ruling party heavyweight Akira
Amari told Reuters days before news of Ueda's choice broke.
When asked in parliament on Wednesday by an opposition
lawmaker, Kishida said he could not comment on how he reached
the decision and when he finalised it. He also declined to
comment on whether the administration sounded out Amamiya for
the job.
Kishida, however, said he had "exchanged views" with many
people since last year in selecting the new BOJ leadership.
The BOJ declined to comment for this story, including on
questions about Amamiya's consideration of the role. Japan's top
government spokesperson Hirokazu Matsuno declined to comment,
when asked on Thursday whether the government sounded out
Amamiya for the top BOJ job.
Matsuno said he hoped the BOJ works closely with the
government and guides monetary policy flexibly, when asked
whether Ueda's appointment could lead to a retreat from
Abenomics.
POLITICAL BALANCING ACT
Thanks in part to Amamiya's recommendation, Ueda remained on
a short list and eventually became the top choice in a process
that was disclosed to only a handful of people.
On Feb. 8, Kishida met party heavyweights Toshimitsu Motegi
and Taro Aso for dinner at a high-end Japanese restaurant near
the premier's official Tokyo residence.
While Kishida did not reveal the name of his preferred
choice, the BOJ succession was among topics discussed, said two
sources with knowledge of the matter.
"The government needed someone who understood monetary
policy both in terms of practice and theory, and can interact
with an inner circle of top central bankers," one of the people
said. "That turned out to be Mr. Ueda."
The fact Ueda, who holds a PhD from the Massachusetts
Institute of Technology and studied under prominent central
banker Stanley Fischer, kept a low political profile and avoided
being branded as someone in favour or against Abenomics, served
him well.
While he warned of the rising cost of the BOJ's yield
control policy, Ueda has called for the need to keep monetary
policy loose to ensure Japan stably achieves the bank's 2%
inflation target.
The view meshed with that of Kishida's administration, which
wants the BOJ to address the side-effects of yield curve control
but not rush into tightening monetary policy.
"Amamiya was labelled as close to Abenomics. By contrast,
Ueda has a fresh image and gives the BOJ a freer hand in
shifting away from Abenomics," said a ruling party heavyweight
belonging to Abe's faction.
Political commentator Atsuo Ito sees Kishida's decision as
symbolic of the way his administration gives due consideration
to what lawmakers of Abe's pro-growth faction think.
"For Kishida, this choice was about getting the political
balance right," he said.
NEW POWER DYNAMICS
Kishida's choice was welcomed by many BOJ policymakers, as
Ueda was no stranger to the institution and a quiet cheer-leader
of its pre-Kuroda conventional policies.
During his seven-year stint as a BOJ board member, Ueda
worked closely with Amamiya inventing new tools to combat a
banking crisis and debilitating deflation.
Even after retiring as board member, Ueda kept close ties
with the BOJ by serving as an adviser at its think tank and
attending various international central bank forums.
"He's something of a legend in Japanese central banking,"
said a BOJ official of Ueda. "He stood out as someone special
among the many members who served at its board."
Knowing they would have little influence on Kishida's final
pick, BOJ officials had a backup plan in case the new governor
was someone from outside the institution.
That was to re-appoint BOJ executive director Shinichi
Uchida for a rare, second four-year term in April last year to
ensure he would slide into the deputy governor post.
That would provide the new leadership with the kind of
knowledge of the BOJ's inner bureaucracy for which Amamiya was
known.
Together with Ryozo Himino, the other nominated deputy and a
former banking regulator, the three should have the right
combination of theoretical, industry and technocratic expertise
to unwind Kuroda-era policy, say sources familiar with the BOJ's
thinking.
However, none of the three are seen as having the political
savviness of Amamiya, who could read the political mood and work
behind the scenes to sound out the administration's policy
views.
That could work as a disadvantage if the economy takes a
turn for the worse and the BOJ again comes under political heat.
Already, Japan faces headwinds from slowing global growth,
casting doubt on whether wages will rise enough to keep
inflation sustainably around the BOJ's 2% target and justify
phasing out stimulus.
"If the BOJ actually moves toward normalising monetary
policy, there will surely be some political tension because the
reflationist-minded lawmakers will push back," said Atsuo Ito.
"A policy reversal will probably take quite a long time."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The BOJ’s YCC faces a reckoning Doves and Hawks of the BOJ board ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional
reporting by Yoshifumi Takemoto, Kentaro Sugiyama, Takaya
Yamaguchi, Makiko Yamazaki, Ritsuko Shimizu, Kaori Kaneko,
Kiyoshi Takenaka and Takahiko Wada; Editing by Sam Holmes)
