Japan's monetary policy is tilting more dovish under Prime Minister Sanae Takaichi's administration, but Bank of Japan officials face mounting pressure to act as yen weakness threatens to spiral out of control, according to BofA Global Research. Recent signals suggest Takaichi's government favors accommodative monetary policy, with her February 16 meeting with Governor Kazuo Ueda described as expressing reluctance toward further rate hikes.

The Mainichi Shimbun reported that Takaichi's comments triggered yen depreciation and a decline in yields, particularly in the intermediate sector. The appointment of Toichiro Asada and Ayano Sato to the BoJ board, both viewed as dovish, led to renewed yen selling and steepening of the super-long end of the JGB curve. BofA warns that unchecked currency weakness carries political and financial risks.

Public concern over rising prices remains elevated, and sustained yen weakness could ultimately push long-end yields higher and force the BoJ's hand. BofA argues that relying solely on foreign-exchange intervention to stabilize the yen while keeping rates low is unrealistic, particularly if delayed policy normalization is seen as the root cause of currency weakness. The bank revised its expected yen range higher to 153–161 from 150–158, noting that further depreciation toward 160 could reignite pressure for additional BoJ tightening, even as the near-term hurdle for a rate hike has increased.