Meanwhile, Japan’s government nominated two dovish candidates to the Bank of Japan Board, leading to renewed JPY selling. In particular, Professor Emeritus Toichiro Asada of Chuo University and Professor Ayano Sato of Aoyama Gakuin University have been nominated as successors to BOJ Board members Akira Noguchi (whose term ends on 31 March) and Junko Nakagawa (whose term ends on 29 June). In particular, Asada has quite an extensive record historically arguing for aggressive fiscal-monetary mobilization to escape deflation, scepticism of contractionary fiscal measures (particularly consumption tax hikes) in weak demand conditions, and also his academic work analyses “MMT-style” coordinated policy as stabilising under some conditions. Meanwhile, Ayano Sato’s accessible public record contains fewer direct standalone statements about BOJ, but her own publicly posted materials show a consistent preference for maintaining/encouring “high-pressure” macro conditions, while prioritizing nominal growth.
Overall, the path forward for JPY FX and rates will depend on potential further clarity both on BOJ rates and also the commitment to fiscal prudence. Our global team’s view is that a April rate hike is still our base case, and we think that PM Takaichi will continue to commit to fiscal prudence including lowering the public debt to GDP ratios over time. What’s interesting is that Asia currencies have started to show some initial signs of decoupling against JPY, when previously a weak JPY has been a key constraint to Asia FX at least over the past 9 months or so. On that front, the strengthening electronics export cycle, coupled with local dynamics including the policy rate and fiscal trajectory will be key to see if this continues moving forward.
Today, we have the Bank of Korea policy decision. We expect BOK to remain on hold at 2.50%, but the guidance may continue to tilt less dovish and ahead of Governor Rhee Chang Yong’s term ending in April. In particular, the BOK will likely raise its growth forecasts to 2% from 1.8% previously, while markets will also watch closely for whether there is a further shift in tone around the commitments to further rate cuts. For context in the January meeting, the BOK removed language about assessing “whether and when” to ease further in the statement. Meanwhile markets will also watch closely for any possible further shifts in the number of BOK board members seeing scope for further easing over the next three months. In the January meeting, only 1 out of 6 members saw scope for further reduction in rates.