The growing likelihood that Yoshihide Suga will succeed Shinzo Abe as Japan's new premier may be a mixed blessing for the country's central bank.
As Abe's key lieutenant and the government's top spokesman, Suga is a safe pair of hands and has a thorough knowledge of the Bank of Japan's policy framework, but he also knows how to pressure the bank into action.With Suga solidifying support within the country's ruling party ahead of a leadership election later this month, Tokyo stocks have rallied on expectations Abe's pro-growth policies will be maintained.
"He has a deep understanding of the BOJ's policies, so the likelihood of policy continuity will heighten," one of the sources said."A Suga administration would maintain most of Abe's policies," including its stance on monetary policy, said a second source. "The BOJ comes under little pressure when markets are calm. That changes when markets turn volatile," said a third source.
A government focus on keeping sharp yen rises in check will also be sustained under the new administration if Finance Minister Taro Aso - who as a former premier holds bitter memories of battling a yen spike that crushed the economy - retains his post, said John Vail, chief global strategist at Nikko Asset Management.
But Suga isn't buying arguments against rate cuts, such as the negative effects of low rates on bank profits.
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