We recently introduced the four main candidates in the ‘how easy can we be’ glamor parade that is the BoJ Governor race. With Abe potentially set to name his nomination as early as this week, the rhetoric is heating up. Citi grades the BoJ governor candidates on a scale of 1 to 5 from the perspective of JPY bullish/bearish. Mr.Kazumasa Iwata will be the most JPY bearish candidate as he is a proponent of the BoJ’s foreign bond purchase. On the other hand, Mr.Toshiro Muto is the most JPY bullish candidate among the big three but he would still be far more dovish on monetary policy (and JPY negative) compared with Shirakawa, the current governor. The third candidate Kuroda will be middle between Iwata and Muto. Also, we need to pay attention to who shall be the deputy governors with USDJPY projections from 90 to 100 depending on the combination.
The BoJ Governor Candidates from most (5) to least (1) JPY-negative
We think that it’s almost certain that one of two must go to Mr.Nakaso, the BoJ executive director, regardless who will become the next governor. A question is who will obtain the other one. If Kazumasa Iwata takes the governor place, we believe one of the deputy posts must be gained by a former MoF bureaucrat with Eijiro Katsu and Yasutake Tango as the most possible candidate.
The total score of JPY weakness would be 11 (the highest) and 10 points and we expect JPY shall depreciate against USD to 95-100 and 92-97 in these cases (case 1 and 2 below).
and how the candidates will be priced into JPY…
In the case Muto or Kuroda wins the presidency we suspect PM Abe would ask someone who will follow his policy devotedly such as Kikuo Iwata or Takatoshi Ito to be the deputy governor. Kuroda-Iwata-Nakaso (case 3) will form a very JPY negative alliance with a 11 score as well as the Kazumasa Iwata-Katsu-Nakaso troika. The JPY negative score of the Kuroda-Ito-Nakaso and the Muto-Iwata-Nakaso troikas (case 4 and 5) is 10 points, when we expect JPY will weaken to 92-97 as well as the case of Kazumasa Iwata-Tango-Nakaso. The Muro-Ito-Nakaso regime (case 6) can gain only 9 points, the lowest among our supposition and USDJPY will stop rising and form a range between 90 and 95 in the near term, we expect. Notwithstanding, the JPY negative score of this case is far larger than the current troika by Shirakawa, Yamaguchi and Nishimura.
From a longer term perspective, no matter who is appointed, we would not expect any major difference in the degree of monetary easing to be carried out under the next BoJ leadership troika.