How the BOJ Gets a New Governor and Why It Matters

Bank of Japan Governor Haruhiko Kuroda is due to step down in April after the longest stint at the helm of the central bank in its 140-year history. Kuroda has spearheaded the most ambitious monetary stimulus program of modern times, with measures that have turned the bank into the largest owner of stocks and government bonds in Japan and made it the last major anchor of ultra-low interest rates in the world. The BOJ’s first change of guard in a decade could have wide-reaching ripple effects in global financial markets if investors sense a potential change in that policy — especially following a surprise tweak in December that allowed long-term yields to rise a tiny bit more.

Prime Minister Fumio Kishida makes the nomination and then seeks approval from both houses of parliament. Hours of hearings will take place soon after Kishida makes his call, but the ruling coalition’s obvious majority in both houses means his decision is unlikely to be blocked. It’s during those hearings, as lawmakers assess the candidate’s suitability for the post, that traders will get a picture of the would-be governor’s policy direction. After his nomination, Kuroda clearly indicated his intention to take quick easing action, without giving the specifics of what policy tools he would use.