Japanese long-term bond yields soar collectively! Takaichi Sanae nominates reflationist to central bank policy committee

# Ye Huiwen

Japanese Prime Minister Tomomi Inada has nominated two reflationist academics to the Bank of Japan Policy Board. The strong pro‑stimulus signal triggered a sharp jump in Japan’s long‑term government bond yields, a weaker yen, and a strong rally in Japanese equities.

After the nomination announcement, Japanese long‑term bonds sold off sharply. According to Bloomberg data, Japan’s 30‑year government bond yield surged 10.5 basis points to 3.38%, while the 20‑year yield also climbed 7 basis points to 2.95%.

Foreign exchange and stock markets reacted quickly to the personnel changes. The USD/JPY rose from around 155.51 before the announcement to 156.04. The Nikkei 225 Index gained roughly 2.2% in afternoon trading, reflecting investors pricing in expectations that the new board members will favor accommodative monetary policy.

The two nominees are Professor Ayano Sato of Aoyama Gakuin University and Professor Toichiro Asada of Chuo University. They will replace outgoing board members Asahi Noguchi and Junko Nakagawa. This marks Prime Minister Inada’s first chance to reshape the dynamics of the nine‑member Policy Board since winning this month’s general election.

## Pro‑stimulus stance reinforces dovish signal

By selecting two pro‑stimulus candidates, Inada appears to be following in the footsteps of her political mentor Shinzo Abe, who appointed numerous reflationists to the central bank board during his tenure. The nominations have fueled market speculation that Inada will take a cautious stance toward rapid rate hikes by the BOJ.

Masamichi Adachi, Chief Economist at UBS Securities Japan Co., expressed surprise, noting both nominees are “full‑fledged reflationists.” Against a backdrop of a weak yen and inflation debates fueling rate‑hike talk, the choice underscores Inada’s strong personal policy leanings.

Yutaka Harada, a former BOJ board member acquainted with both nominees, stated the two believe it crucial to support the economy through both monetary and fiscal means. With inflation expected to slow, they would likely find it difficult to justify further rate hikes, he added. While the new members are unlikely to dominate board views immediately, their philosophy could resonate with other members over time.

## Rate‑hike expectations face reassessment

Amid persistent yen weakness, economists had increasingly leaned toward a possible BOJ rate hike as soon as April, shifting from the previous consensus of June or July. Some even saw a small chance of a move at the March 19 policy meeting. Following the latest nominations, however, markets may need to reassess these expectations.

Taro Kimura, economist at Bloomberg Economics, noted that if parliament approves the two nominees, the balance of the Policy Board will tilt slightly toward a slower pace of rate hikes. Still, Bloomberg Economics maintains its view that the BOJ will proceed cautiously toward a potential next rate increase in July, seeing the potential personnel changes as unlikely to alter the overall picture.

Outgoing board member Asahi Noguchi has been a staunch advocate of monetary easing, twice voting against rate hikes. In a Bloomberg survey last month, more than 60% of BOJ watchers expected him to be replaced by someone equally dovish. Market focus had therefore centered on the second nomination: whether Inada would balance her picks or send a clear pro‑stimulus signal, given that the other outgoing member, Junko Nakagawa, had not dissented against board decisions.

## Limited market concern; focus on policy intervention risks

Despite volatility from the personnel changes, market worries about government interference with central bank independence remain contained. Replacing two board members is unlikely to completely upend the BOJ’s stated intention to raise interest rates as economic conditions allow.

Carol Kong, strategist at Commonwealth Bank of Australia, noted markets likely view the new nominees as slightly more dovish than the outgoing members. Yet the limited yen selling and the magnitude of moves in long‑term bond yields suggest markets are not overly concerned about Inada interfering with BOJ policy.

Risks of policy friction remain, however. Local media previously reported that Inada expressed concerns about further rate hikes during a meeting last week with BOJ Governor Kazuo Ueda. The news sent the yen down as much as 1.1% on Tuesday. The BOJ declined to comment on the report. Ueda said after the meeting last week that they exchanged general views on the economy and that Inada made no specific requests.

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