Two reflationist academics, Toichiro Asada of Chuo University and Motohiro Sato of Aoyama Gakuin University, have been nominated to the Bank of Japan’s Policy Board. The market’s initial reaction was straightforward: the Takaichi government is signalling that it wants to slow rate hikes. The yen weakened, stocks rose, and long-dated bond yields steepened. A textbook reflationist repricing.
But there is another way to read these appointments. And which reading proves correct has meaningful implications for how you position in Japanese equities.
The surface reading: consistency, not contradiction
The first thing to acknowledge is that these appointments are entirely consistent with who Takaichi is. She called BOJ rate hikes “stupid” during her leadership campaign. She has always been the dovish candidate within LDP politics, the spiritual heir to Abenomics. Both nominees belong to the same reflationist intellectual tradition and have ties to dovish former policymakers.
Unlike the Trump-Warsh appointment in the United States, where the rhetoric (demanding rate cuts) contradicted the action (appointing a known hawk), Takaichi’s rhetoric and her appointments point in the same direction. She appears to be doing exactly what she said she would do.
This makes the parallel with Trump and Warsh instructive but imperfect.
The Trump-Warsh mirror
Trump loudly demanded rate cuts but appointed Kevin Warsh, a former Fed governor known as a hawk. One reading of this is deliberate credibility arbitrage: a hawk who eventually cuts rates sends a far more powerful signal than a dove who cuts. Markets would price a Warsh cut as evidence of genuine economic necessity rather than political capitulation. It is the “only Nixon could go to China” logic applied to monetary policy.
Could a similar dynamic play out in reverse with Takaichi’s appointees? If known reflationists eventually vote for rate hikes, that signal would carry enormous credibility. “Even the doves think rates need to go up” is a message that moves the forward curve in ways that a hawkish board hiking rates never could.
The difference is intent. With Trump and Warsh, there is a plausible argument that the credibility arbitrage is deliberate. With Takaichi, the available evidence suggests she genuinely wants to slow normalisation. She is not playing four-dimensional chess by appointing doves who will eventually validate hikes.
But here is the question that matters for investors: does intent matter if the data forces the outcome?
The Noguchi precedent
There is already a precedent on this very board. Noguchi Asahi, the outgoing member whom Asada replaces, joined as a strong advocate of aggressive monetary easing. Yet by the end of his tenure, he voted in favour of the BOJ’s last two rate hikes. He entered as a dove and ended up acting like a hawk, because the data left him no reasonable alternative.
If Asada and Sato follow the same path, the signal would be powerful. “The prime minister’s own appointees agree that rates need to rise” is a message that provides more durable support for the normalisation path than any hawkish appointment could.
Where the real tension lies
The tension in Japan is not between Takaichi’s words and her actions. Those are aligned. The tension is between her appointments and the sitting governor who still controls the near-term agenda.
Governor Ueda responded to the reflationist nominations almost immediately, stating that the BOJ would continue to raise rates if its economic projections materialise. At the January meeting, board member Takata dissented, voting for an immediate hike to 1.0%. Board member Masu argued for further hikes to reduce “policy divergence with other major economies,” language that echoes US Treasury Secretary Bessent almost word for word.
The new appointees will join a board where the direction of travel has already been established. They can slow the pace at the margin, but reversing it entirely would require them to argue against data that currently supports continued normalisation: core inflation above target, wage growth sustained, and external pressure from Washington for yen strengthening.
What Bessent actually wants
Bessent told Bloomberg that the BOJ likely would be hiking rates because it had an “inflation problem” and could be “behind the curve.” Officially, Japan denied that Washington was pressuring the BOJ. Unofficially, former BOJ board member Kiuchi observed that Bessent’s remarks “may reflect the Trump administration’s hope of using BOJ rate hikes to reverse the weak-yen trend.”
What Bessent wants is not a single rate hike. He wants the market to believe in a credible path of normalisation, because a credible path supports the yen, narrows the trade imbalance, and, critically, keeps Japanese institutional demand for US Treasuries stable rather than triggering a disorderly repatriation of capital.
Paradoxically, a board that includes reflationists who gradually endorse normalisation may serve Bessent’s purposes better than a board of hawks doing the expected. The credibility of the path increases precisely because the doves are walking it.
Two scenarios for investors
The first scenario is that Takaichi’s intent prevails. The reflationists resist rate hikes, the normalisation pace slows, and the yen weakens. This is supportive for exporters and broadly positive for equities in the short term, but it risks increasing friction with Washington and elevating long-term bond volatility.
The second scenario is that the data prevails. Inflation stays above target, wage growth continues, and external pressure mounts. The reflationist appointees, like Noguchi before them, find themselves voting for hikes because the alternative is no longer intellectually defensible. In this case, the normalisation path gains credibility, the yen stabilises, financial stocks benefit, and JGB volatility decreases.
It is possible that the second scenario unfolds regardless of Takaichi’s intentions. If so, her dovish appointments would accidentally produce the most credible possible version of monetary normalisation. A hawk hiking rates is expected. A dove hiking rates is news.
Which scenario plays out depends on data that has not yet been published and decisions that have not yet been made. But reading these appointments as a simple “hikes are over” signal, and trading accordingly, risks missing the more complex dynamic that is unfolding beneath the surface.
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