On February 25, the government presented its nominees for the Bank of Japan (BOJ) Policy Board to the Diet. Professor Emeritus Asada Tokuo of Chuo University is tapped to succeed Noguchi Asahi, and Professor Sato Ayano of Aoyama Gakuin University is named as the successor to Nakagawa Junko. To be honest, as I no longer read academic papers and had not encountered their specific arguments in online media, I was not intimately familiar with them. However, judging from recent reports, these appear to be extremely appropriate selections. I welcome them wholeheartedly.
In media reports, both nominees are frequently introduced as “reflationists.” My personal understanding of a reflationist, in the narrow sense, is someone belonging to a school of thought that aims to achieve a desirable price level through monetary easing. Since these two also seem to understand the importance of fiscal stimulus, I believe they are proponents of what is currently termed a “high-pressure economy” (高圧経済) rather than being reflationists in the traditional, singular sense.
I often find myself at odds with so-called “market participants.” According to them, many had expected the government to nominate one reflationist and one “centrist.” Since it is widely known that Prime Minister Takaichi is reluctant to raise interest rates, and given my background as a former emerging-market economist—which left me with little interest in the typical selection process for BOJ board members—I initially struggled to understand why such an expectation existed. However, looking back, it seems that even Shinzo Abe, who was aggressive about monetary easing, intentionally included centrists in his appointments. Indeed, Nakagawa Junko occupied such a role, remaining politically “colorless and transparent.”
I personally felt such figures were unnecessary; anyone can simply cast a vote in favor of the Governor’s policy. When I asked ChatGPT for its opinion, it suggested that including “non-reflationists” who nonetheless agree with easing creates a “pose” of consensus, thereby building credibility for monetary policy. Perhaps that is how it works.
However, the current situation is entirely different. Even Noguchi Asahi, the last remaining reflationist on the board, has made statements favoring rate hikes, which hardly seems aligned with the “Takaichi doctrine.” While Nakagawa Junko is classified as a centrist, the other members—appointed during the Kishida and Ishiba administrations—all seem to be pulling in the opposite direction. Is it not only natural to bring in individuals with a solid theoretical background to deliberate on monetary policy within the extremely difficult context of “pursuing expansionary fiscal policy amidst cost-push inflation”? This is no time to be worrying about a “centrist quota.”
If a centrist were to be included, it should only be after the faction aiming for a high-pressure economy has secured a majority. Without naming names, I believe there are still several prominent scholars who understand high-pressure economics and would be strong candidates for the board. In any case, there is no need to appoint financial sector representatives who simply argue, “Let’s raise rates because of inflation; it will help financial institutions profit,” without ever mentioning real wages or capital investment. Doing so would once again derail the Japanese economy. Even if a representative from the financial sector is to be included, it should be someone more attuned to the real economy and the management of small and medium-sized enterprises (SMEs).
I do not deny that these appointments may exert a certain degree of downward pressure on the yen. However, as I have repeatedly stated, the Takaichi administration is not simply aiming for a weak-yen policy; it is prioritizing economic growth through fiscal policy. Consequently, demand-pull inflationary pressure—backed by increased demand—will strengthen. This actually expands the potential room for interest rate hikes in the future, which could ultimately lead to upward pressure on the yen. If the BOJ simply rushes to raise rates as some current board members advocate, the resulting economic downturn will eventually force policy rates back down. In the mid-to-long term, such a move would only result in the yen’s weakness being left unaddressed.
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