First, I must clarify that I have no personal connection with Mr. Karakama. I rarely read his reports or watch his media appearances. What follows is essentially my speculation, based on the established facts of the situation.
The incident in question involves Daisuke Karakama, Chief Market Economist at Mizuho Bank, who released a report under the bank’s name criticizing Prime Minister Takaichi’s recent comments, which were interpreted as tolerating a weak yen.
A Timeline of the Incident
- Saturday, Jan 31: The PM’s Speech in Kawasaki PM Takaichi stated that a weak yen isn’t purely negative, calling it a “huge opportunity” for export industries and noting that it has acted as a “buffer” to help companies regain domestic earning power. She also mentioned that the Foreign Exchange Fund Special Account (FEFSA) is currently “thriving” due to valuation gains and expressed a desire to return these gains to the public.
- Saturday, Jan 31: Press Doorstep When asked if she tolerates a weak yen, she replied, “We don’t know if a strong or weak yen is inherently better… but we should view the current situation as an opportunity rather than being pessimistic.”
- Sunday, Feb 1: Clarification on X (Twitter) The PM clarified that she does not “unconditionally welcome” rapid depreciation and understands the pain of rising import costs. Her “true intent” was to build a resilient economic structure that isn’t at the mercy of exchange rate fluctuations by using the current environment to spur domestic investment and wage hikes.
- Monday, Feb 2: Market Reaction The yen dropped significantly, falling about 1.5 to 2 yen from the 154 level.
- Monday, Feb 2: The Karakama Report Mizuho released a report concluding that Takaichi’s view—that yen depreciation leads to a “behavioral shift” in Japanese companies (i.e., domestic investment)—is an “outdated value system.” He also questioned whether she understood that the FEFSA is “ammunition” that should be preserved for emergencies.
- Feb 3 Onward: Internet Backlash Conservative YouTube channels and social media exploded with criticism, suggesting Mizuho was interfering in politics to protect bank interests or acting on behalf of the Ministry of Finance.
Evaluating the PM’s Remarks
It is undeniable that PM Takaichi’s initial remarks were somewhat careless. It would have been safer to stick to the balanced view that “there are pros and cons to a weak yen, and the government will support those who can leverage the pros.” By failing to acknowledge the undeniable downsides of depreciation immediately, she inadvertently triggered a market move. Her clarification on X was reasonable, but the “damage” to the exchange rate was already done.
In the grand scheme, however, this is a minor issue. Exchange rates fluctuate whenever a high-ranking official speaks. That is the nature of the beast.
Evaluating the Karakama Critique
While Mr. Karakama is correct that a weak yen alone hasn’t sparked a domestic investment boom in the past, he ignores the fact that the current administration is taking a proactive industrial policy approach. Using fiscal stimulus to boost domestic demand and negotiating to bring semiconductor or shipbuilding hubs back to Japan are valid strategies.
Regarding the FEFSA: while valuation gains aren’t a “permanent” revenue source, realized gains from past interventions are certainly a valid “one-time” resource. Furthermore, if a weak yen is causing more harm than good, and our foreign reserves are excessive, selling them to capture gains is perfectly logical. Of course, since this involves selling U.S. Treasuries, it requires diplomatic coordination with Washington—but that doesn’t make the assets untouchable.
The Real Motive?
Mr. Karakama belongs to the International Foreign Exchange Department. His role isn’t policy advocacy; it’s market forecasting. His job is to analyze the PM’s character to get his predictions right.
Notably, Mizuho’s recent report had predicted a slight strengthening of the yen (from an average of 153.51 in January to 153.00 in February/March). In short, his forecast—the result of desperate information gathering and painstaking, time-consuming analysis—could have been completely ruined by Takaichi’s careless remarks even before February had begun. If I were in his shoes, I would be furious too.
As a general rule, a Chief Market Economist might have a relatively loose internal review process for their reports. Still, it is rare for a private bank to openly attack an administration—government power is a scary thing to challenge.
As I’ve stated before: market forecasting, including exchange rates, is essentially impossible. Standard macroeconomics textbooks admit this. Who could have predicted a surprise “rate check” or a specific off-the-cuff remark from a Prime Minister? No one.
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