Japan's Wealthy Economy Struggles with Poverty

The Japanese economy is facing a historic turning point, marked by a depreciating yen and a soaring stock market. Daisuke Karakama, Chief Market Economist at Mizuho Bank, attributes this phenomenon to a disconnect between policy and performance.

Karakama notes that despite the Bank of Japan raising its policy interest rate from 0.75 percent to 1 percent in June 2026, the yen has continued to weaken. He credits the Nikkei Stock Average surpassing 70,000 yen largely to a FOMO market psychology driven by AI and semiconductor booms.

Karakama explains that the Bank of Japan faces difficulty in controlling market expectations because global interest rates in the US and Europe are also rising, rendering small, gradual rate hikes ineffective at curbing yen depreciation.