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One argument was that providing a demonstration on an unpopulated island ran the risk of failure in front of Japanese observers. But I have not read any suggestion of using a Japanese POW of high officer rank being an observer at the Trinity test. If the bomb worked he could have been released and if it failed, not released.
I assume that Japanese POWs who were officers might have been few but I would guess there were some.
The question of whether this was suggested can only be answered by a full archive search. The question of whether this was done is a bit easier to check, there's probably a list of witnesses to Trinity somewhere, which can be dug up. I have never seen mention nor suggestion of this. You can contact the Atomic Heritage Foundation and the National Atomic Test Museum for a more definitive answer.
What is easier to ask is was this even possible? It's predicated on two things: the Allies having high-ranking Japanese POWs, and the Allies believing the Japanese would listen.
Unlike Western armies who believed you fought until it was hopeless and then surrendered (and tried to escape), Imperial Japan did not believe in surrender. They did not ratify the Geneva Convention.
Given that surrender was considered a great dishonor, would the Japanese even listen to a POW? Given that the US only had three bombs, was it worth using one for a demonstration only to have the Japanese ignore the POW's story?
Here's a few samples about death and surrender from their Senjinkun military code.
From "Discipline"
The spirit of the soldier is best exemplified by those who silently do their duty, joyfully braving death in obedience to a command given at a time when they are undergoing great hardships.
From "Unity"
It is essential that each man, high and low, dutifully observing his place, should be determined always to sacrifice himself for the whole, in accordance with the intentions of the commander, by reposing every confidence in his comrades, and without giving even the slightest thought to personal interest and to life or death.
From "Aggressiveness"
In defence, always retain the spirit of attack an always maintain freedom of action; never give up a position but rather die.
From "The Conviction To Win"
Do not give up under any circumstances, keeping in mind your responsibility to keep untarnished the glorious history of the Imperial Army with its tradition of invincibility.
From "View Of Life And Death"
Do your duty with heart and soul, regardless of life or death. After exerting all your powers, spiritually and physically, calmly face death rejoicing in the hope of living in the eternal cause for which you serve.
From "Honour"
Meet the expectation of your family and home community by making effort upon effort, always mindful of the honour of your name. If alive, do not suffer the disgrace of becoming a prisoner; in death, do not leave behind a name soiled by misdeeds.
Source: Senjinkun (1941) translated into English by the Tokyo Gazette Publishing House
This is the part which can be checked with some research to find a definitive list of Japanese POWs in captivity prior to the Hiroshima bombing. Here's what a quick search turned up...
Vice Admiral Shigeru Fukudome was the first Japanese flag officer to be captured by the enemy in March 1944. He was captured by Filipino guerillas and released to avoid retaliation on civilians. Fukudome continued his career despite being captured, perhaps because it was during a plane crash, not battle.
Ensign Kazuo Sakamaki, technically an officer, was found unconscious after his failed midget submarine attack on Pearl Harbor.
And that's about all I can find.
