MNI POLICY: BOJ Rate Hike Mode Intact Despite Reflationists

The government’s nomination of two dovish academics to its policy board is unlikely to impede the Bank of Japan’s gradual tightening stance, MNI understands, with the timing of further increases dependent on evolving economic and price developments.

The Japanese government on Wednesday nominated Toichiro Asada, professor emeritus at Chuo University, to succeed Asahi Noguchi when his term ends March 31, and Ayano Sato, a professor at Aoyama Gakuin University, to replace Junko Nakagawa when she departs June 29. Both will serve five-year terms, subject to approval by both houses of parliament before formal cabinet appointment. (See MNI POLICY: Concerns Grow Over Takaichi's BOJ Board Picks)

The two academics have previously advocated monetary easing and fiscal stimulus, reflecting Prime Minister Sanae Takaichi’s preference for maintaining low interest rates. (See MNI POLICY: BOJ Sees Hikes Intact, Despite Takaichi Win)

However, Governor Kazuo Ueda’s underlying bias toward gradual tightening is not expected to be derailed by the addition of reflationist members.

The BOJ’s nine-member board — comprising the governor, two deputy governors and six other members — decides policy by majority vote. The two deputy governors typically support the governor’s stance, although one has dissented in the past.

Aside from the three executives, at least three current board members see scope for further rate increases, citing still-deeply negative real interest rates. As a result, a proposal by Ueda to raise the policy rate would likely still secure majority backing despite the appointment of two dovish members.

In addition, newly appointed academics rarely dissent at the outset, tending to align with the governor’s proposal as they transition from theoretical backgrounds to the practical demands of policymaking.

U.S. CONCERNS

BOJ officials are also mindful that if Takaichi were to continue openly opposing rate hikes, it could risk friction with U.S. authorities, who view policy normalisation as appropriate amid concerns over yen weakness and elevated JGB yields.

Takaichi is likely to tolerate further rate increases in deference to the BOJ’s institutional independence, having learned in December that perceived government interference in monetary policy unsettled currency and JGB markets.

U.S. Treasury Secretary Scott Bessent led a rate check conducted by U.S. authorities during the sharp fall of the yen against the dollar in January, according to mainstream press reports, underscoring Washington’s concerns about excessive yen weakness and a potential surge in JGB yields if resistance to BOJ tightening were to intensify.

The BOJ board next meets March 18-19.