Japan's Economy in Shambles: Inflation, Weak Yen Threaten Takaichi's Reforms

Japan's economy has undergone significant changes over the past few decades, particularly under the leadership of Prime Minister Takaichi Sanae. In an effort to boost economic growth and reduce debt, the Bank of Japan (BOJ) implemented a zero-interest-rate policy in February 1999, which lasted for 25 years.

The policy had several consequences, including making Japan the world's largest creditor nation for 34 years and creating the 'yen carry trade,' where investors borrowed yen at low or negative interest rates to invest in other currencies with higher yields. Estimates of the size of this trade range from $350 billion to $14 trillion.

However, the BOJ finally raised short-term rates to 0.0-0.1% in March 2024 and then again to 1%, the highest since 1995, due to rising wages and higher prices.