How Will the BOJ Leadership Change Impact JPY?

There have been some interesting developments already within the central bank landscape at the start of 2023.

We’ve seen the return of hawkish Fed expectations, the prospect of a forthcoming shift in rates by the ECB and BOE, and now, growing increasingly more important for traders is the upcoming change in leadership at the BOJ. The upcoming BOJ meeting on March 10th will be the final meeting for BOJ’s Kuroda, who will hand over power to incoming BOJ governor Kazuo Ueda. 

Kuroda’s time coming to an end

Kuroda’s decade at the helm of the BOJ makes him the longest serving governor in the bank’s history and understandably, the shift in power is causing a great deal of uncertainty among traders. Sadly, for Kuroda, his goal of delivering a return to economic growth via ultra-loose monetary policy has proved fruitless. Over recent years, the bank (and Kuroda in particular) has drawn a huge amount of criticism from those arguing that the BOJ’s ultra-loose monetary policy exacerbated Japan’s economic problems. Even against the backdrop of broad central bank tightening seen over the post-pandemic recovery period, the BOJ has kept rates in negative territory. With the upcoming shift in power comes a great deal of speculation over how incoming BOJ governor Ueda will drive policy and how this will impact JPY. 

Is Ueda dovish or hawkish? 

In attempting to gauge how a shift in central bank leadership is likely to impact the currency in question, the first port of call is always to try and establish whether the incoming is a hawk or a dove. In Ueda’s case, he is deemed as neutral, showing no strong preferences in either direction, which creates even more uncertainty as he has the potential to move in either direction on policy.  Ueda, who comes from an academic background, has been on the BOJ’s policy board, however, when the bank introduced negative rates in 1999 and QE in 2001, Ueda was seen supporting the decisions. Last year, though, writing for the Nikkei Ueda was seen questioning the effectiveness of the BOJ’s ultra-loose monetary policy though cautioned against the dangers of tightening policy too soon. 

Hawkish expectations growing 

Despite his caution, however, there is growing anticipation that the BOJ will begin normalising policy under the new BOJ governor. With Tokyo inflation recently hitting 40 year highs and the BOJ unable to drive JPY higher despite recent yield-curve target adjustments and FX buying, the only option looks to be for the incoming BOJ governor to hike rates. 

Incoming BOJ governor to speak on friday 

On Friday, Ueda will speak before the Japanese parliament, giving markets the first real insight into his views and likely direction as incoming BOJ governor. His comments are likely to be highly market moving given the anticipation building up ahead of the change in power. 

Might Kuroda Act First?

The Japanese bond market is already pricing in a shift in policy with JGB yield rates soaring in recent days. There has also been some market chatter around a potential surprise hike by Kuroda on March 10th as a way of helping lead the transition away from ultra-loose monetary policy. 

While such a move appears to be an outside scenario, markets have started pricing in a likely lift off point for rates with July currently seen as the frontrunner for a shift in BOJ monetary policy. This week we also heard from former Japanese vice Fin Min Eisuke Sakakibara who said that he feels the BOJ will raise rates in October. 

Upside risks for JPY?

Clearly, the tide is turning in favour of BOJ tightening and, as such, JPY risks are building to the upside as we look ahead. Friday’s comments from Ueda will be closely watched for any signal that the BOJ is likely to change course in the near future. If any such signal is given JPY is likely to advance sharply. However, if Ueda is seen playing his cards close to his chest on Friday and refrains from giving any clear signals, this might see JPY sell-off further near-term as traders await a firm signal on tightening. 

USDJPY weekly technical chart 

Source: TradingView / FlowBank


The reversal higher in USDJPY has seen several key technical developments. We’ve seen price breaking above the recent bear channel into 2023 lows, above the series of inside bars which formed over late Jan, and also back above the 130.71 level. This is a clear indication of a shift in sentiment for the market and while the price remains above the 130.71 level, the outlook is in favour of a move up to 139.02 next.