LONDON – The yen strengthened broadly on Friday after the Nikkei reported that the Japanese government was set to appoint Kazuo Ueda as the next governor of the Bank of Japan.
The government will also nominate Ryozo Himino, former head of Japan’s banking watchdog, and BOJ executive Shinichi Uchida as deputy governors, the Nikkei said.
The BOJ shocked markets in December when it raised the cap on the 10-year yield to 0.5 percent from 0.25 percent, doubling the band it would permit above or below its target of zero.
Since then, speculation gathered pace that the BOJ could adjust or scrap its yield curve control policy, even though it refrained from any changes at its last meeting.
The yen suffered broad losses, as analysts expect the new governor could bring an end to the BOJ’s ultra-easy monetary policy sooner than previously thought.
James Malcolm, head of FX strategy at UBS, said Ueda’s nomination should be perceived as a “hawkish” outcome, given Ueda’s previous criticism of the BOJ’s monetary policy as far back as 2016.
“I’m surprised that dollar-yen is not at 129 already,” Malcolm said.
“Maybe that’s just a result of people not knowing who these characters are. To me, this is as hawkish an outcome as having Mr Yamaguchi in the governor role.”
Hirohide Yamaguchi, a former BOJ deputy governor, was also in the running for the top job and has previously been a vocal critic of the BOJ’s stimulus programme.
The dollar sunk as much as 1.2 percent to 129.8 yen. It was last down 0.9 percent to 130.365 yen.
The euro and sterling both fell 0.9 percent to 140.01 yen and 158.16 yen, respectively. The Australian dollar slipped 0.7 percent .
“Markets had been expecting Amamiya to come in and pick-up where Kuroda left off,” said Simon Harvey, head of FX analysis at Monex Europe.
“The BOJ’s exit from ultra-easy monetary policy is still highly dependent on what happens during the spring wage negotiations, but a new regime could mean there’s no love lost on the ultra-loose policy side.”
The government is expected to present the nominees to parliament on Feb. 14.
The dollar index, which measures it against six currencies including the yen, was last down 0.2 percent to 103.01. For the week, the index is set to eke out a 0.06 percent gain, its second straight positive week and a run it has not had since October.
The pound was up 0.1 percent at $1.2134 after Britain managed to avoid a technical recession, with the economy showing zero growth in the final three months of 2022.
The euro was little changed at $1.074 and was set for a second straight week of losses.
Meanwhile, the Norwegian krone strengthened against both the euro and dollar after Norway’s core inflation rate jumped in January to its highest level on record.
“Both Norway and Sweden are in a pretty similar boat, struggling to get domestic inflation pressures under wraps,” Monex Europe’s Harvey said.
“That’s going to force them to hike rates, most likely more than they’re comfortable with, and that’s now playing out in the currency markets.”
Elsewhere, the Australian dollar rose 0.1 percent to $0.6946, while the kiwi rose 0.2 percent against the U.S. dollar at $0.6338.