The cabinet of Sanae Takaichi submitted two new candidates for the Bank of Japan's policy board to the Diet on February 25. The nominees are Norichika Asada, Professor Emeritus at Chuo University, and Ayano Sato, a professor at Aoyama Gakuin University. They are slated to replace departing members whose terms expire at the end of March and June, respectively.
According to market analysis, teams at Morgan Stanley MUFG and Goldman Sachs view both nominees as holding distinctly dovish views on inflation, aligning closely with Takaichi's economic policy stance. This personnel arrangement could alter the internal policy balance at the Bank of Japan, subsequently influencing the pace of interest rate increases.
In the short term, the addition of two dovish members significantly reduces the probability of the Bank of Japan raising rates earlier than expected, such as in April or June of this year. One nominee, Ayano Sato, has explicitly advocated that a weak yen benefits the Japanese economy, a stance that could exert downward pressure on the yen in the near term. Financial institutions broadly agree that conditions for a near-term rate hike remain immature. Morgan Stanley maintains a baseline forecast for a June hike, viewing July as a potential risk scenario, while Goldman Sachs holds to its prediction of a July increase. Summer has emerged as the market's consensus window for the next hike, suggesting the timing for policy tightening is now expected to be delayed until at least the middle of the year.
Regarding the prospects for these appointments, Morgan Stanley noted that the candidates' names were not widely circulated beforehand, indicating a strategic move by the government to tightly manage information. Goldman Sachs added that while the ruling coalition lacks a majority in the upper house, the nominations are unlikely to be rejected as long as any opposition party votes in favor. If approved, Asada would begin voting at the April monetary policy meeting, with Sato joining the decision-making process from July onward.
**Candidate Profiles: Anti-Austerity Scholar and 'Weak Yen' Advocate** Both candidates have public records marked by distinctly dovish and anti-austerity views, closely aligning with Takaichi's economic policy philosophy.
Norichika Asada, Professor Emeritus at Chuo University, is a macroeconomist known for his anti-austerity fiscal stance. In 2016, he advocated for "helicopter money" and suggested amending the Bank of Japan Act to better align central bank policy with government economic objectives. In 2021, he argued that Japanese government bonds held by the BOJ should not be counted as government debt, reasoning that the central bank is part of the broader government sector. As early as 2015, he stated that achieving the "Abenomics" target of 600 trillion yen in nominal GDP required sustained inflation and growth, necessitating a full deployment of coordinated fiscal and monetary policy.
The other candidate, Ayano Sato of Aoyama Gakuin University, approaches from an academic research perspective, using OECD panel data to analyze how high-pressure economies can boost labor productivity. In a 2023 speech to a group of Liberal Democratic Party lawmakers, she explicitly stated that a weak yen benefits the overall Japanese economy by improving the trade balance and encouraging the repatriation of production bases. She also advocated for actively using surpluses from special accounts, such as foreign exchange reserves, to support fiscal spending. Sato emphasized that as long as inflation and long-term interest rates remain low, there is still room for further government bond issuance, with tax increases being a measure of last resort. From her viewpoint, the current stage requires maintaining loose monetary policy to support continued economic expansion.
**Bank Outlook: Higher Bar for Hikes, Summer as Key Period** Currently, aside from Governor Kazuo Ueda, the BOJ's policy board is perceived as having a hawkish majority. Morgan Stanley believes the addition of two dovish members will foster more vigorous debate during policy meetings, leading to more thorough deliberation. The firm argues that with recent CPI data not yet showing sufficient strength, the BOJ needs to wait for April inflation figures released in May to better confirm the pass-through of wage growth to prices, making a March or April hike premature. It maintains a baseline forecast for a June hike, with July as a risk scenario, and anticipates that after the policy rate reaches 1%, the BOJ will enter a prolonged observation phase, with the next potential hike not occurring until around April 2027.
Goldman Sachs points out that while remaining members will likely still support Governor Ueda's proposals for hikes, preventing a major reversal in votes, Article 4 of the Bank of Japan Act requires monetary policy to be consistent with government economic policy. This legal framework implies the bar for further rate increases is now higher than previously anticipated. The bank specifically referenced the historical lesson from August 2000, when the government explicitly requested a delay in hiking, but the BOJ voted down the request and raised the policy rate from 0% to 0.25%. Subsequently, the collapse of the US dot-com bubble dragged Japan into recession, and the central bank faced severe criticism from the Diet and media. Given that the BOJ governor is required to testify before the Diet for dozens of days annually—a figure that has remained between 40 and 80 days in recent years—such political-economic factors will likely encourage the BOJ to avoid direct friction with the government, lest it repeat past mistakes.
Goldman Sachs maintains its baseline call for the next hike in July, noting that the probability of an earlier move in April or June has diminished. Simultaneously, the bank warned that if the hike is delayed beyond July, the BOJ risks falling behind the yield curve, potentially forcing the terminal rate to a restrictive level exceeding 1.5%.
Comments