The upcoming nomination of new members to the Bank of Japan's policy board by Prime Minister Takaichi is becoming a critical window for markets to assess her monetary policy intentions. This personnel decision will reveal the extent to which Takaichi wishes to steer the central bank's policy direction.
According to sources familiar with the matter, Prime Minister Takaichi may propose replacing two current board members—Asahi Noguchi and Junko Nakagawa—as early as the February 25th parliamentary session. Noguchi's five-year term ends in March, while Nakagawa's term concludes on June 29th.
Although these nominations require approval from both houses of parliament, and the fact that Takaichi's ruling party lacks a majority in the upper house adds uncertainty to the process, markets widely believe that her choices alone will send a clear policy signal.
A survey last month indicated that 63% of BOJ watchers expect Noguchi's successor to have a distinct reflationary bias. The core issue is the degree of dovishness of the two nominees. Under the current political landscape, it is almost impossible for Takaichi to select a hawkish candidate. Should aggressive easing advocates successfully secure the positions, the yen exchange rate and the Japanese Government Bond market could face a new wave of volatility.
The personnel selection is under market pressure. If Takaichi appoints two reflationists to the BOJ policy board simultaneously, market unease could intensify. Investors worry that, even though Japan's inflation rate has exceeded the central bank's 2% target for four consecutive years, Takaichi may still attempt to slow the pace of interest rate hikes and further expand fiscal spending to stimulate the economy. Both positions being filled by strong advocates of monetary easing could trigger significant yen depreciation and a sharp rise in bond yields.
A former BOJ policy board member stated this week that if she genuinely wants to prevent yen weakness or rising long-term bond yields, she should avoid choosing reflationists.
Takaichi is known for supporting stimulus policies, favoring economic growth, and being cautious about rate hikes. In 2024, the year before she became Prime Minister, she publicly stated that a BOJ rate hike at that time would have been "foolish." Since taking office last October, she has appointed several reflationists to her economic advisory panel, including former Deputy Governors Masazumi Wakatabe and Goushi Kataoka, both of whom were previously appointed to the BOJ board by her mentor, former Prime Minister Shinzo Abe.
Despite market sensitivity to her personnel decisions, Takaichi has increasingly avoided explicitly discussing monetary policy details since taking office. According to BOJ Governor Kazuo Ueda, during a one-on-one meeting at the Prime Minister's office on Monday, Takaichi did not make any specific policy requests.
Regarding fiscal policy, the Prime Minister's recent statements have also been more cautious. She had previously caused bond market turmoil in late January by pledging a temporary suspension of the food消费税, but has since tempered such remarks.
Takaichi's election victory has provided her government with stronger footing. Her party secured over a two-thirds majority in the lower house, solidifying a government that previously operated with a slim majority. This significant victory, combined with her cautious post-election rhetoric, has effectively reassured market participants.
At a press conference the day after her February 9th election victory, she specifically emphasized that her proactive fiscal policy would be "responsible" and clearly stated that any consumption tax cuts would not be financed by additional debt issuance. This statement aimed to alleviate market concerns about loose fiscal discipline.
Some BOJ watchers believe that even if Takaichi selects a strong monetary easing advocate to replace Noguchi, the impact on the overall composition of the policy board would be limited. Noguchi is himself a scholar inclined towards stimulus and voted against rate hikes twice; replacing one dove with another would not alter the existing balance of power.
In contrast, Nakagawa's successor is under greater scrutiny. As a former executive at Nomura Holdings, Nakagawa generally followed the board's consensus and has voted in favor of all rate hike decisions since the BOJ exited its massive stimulus program in March 2024. If a reflationist were to take her seat, the tilt in the policy balance would be more pronounced.
The appointments are expected to maintain the current gender balance of one man and one woman. This also continues the progress in gender equality achieved last year when the board had two female members for the first time.
Takaichi's victory opens up greater scope for her long-term policy planning. By the spring of 2028, the terms of BOJ Governor Kazuo Ueda and the Deputy Governors will concurrently conclude. If Takaichi remains in office, she will have the opportunity to lead a new round of core personnel appointments, further shaping the central bank's future direction.