There's a classic scene in The Godfather where Michael Corleone says: "My father taught me many things. He taught me that every man who acts has a motivation."
Well then. Sanae Takaichi, Japan's prime minister, just showed hers. And the yen took the hit.
What happened
The news that rocked the forex market this week is simple to understand but deep in its consequences: Takaichi selected candidates considered dovish — meaning they favor keeping interest rates low and monetary policy loose — for key positions at the Bank of Japan (BoJ).
The result? The yen weakened. Instantly. No delay. No magic tricks.
The market isn't stupid. When you put people who love printing money in charge of the monetary spigot, the currency loses value. It's cause and effect, as basic as gravity.
Translating the jargon
Let's break this down, because I know a lot of people hear "dovish" and "hawkish" and think we're talking about birdwatching.
Dovish (dove): wants low rates, monetary stimulus, easy money flowing. The philosophy is "let's heat up the economy even if the currency takes a beating."
Hawkish (hawk): wants high rates, monetary tightening, inflation control by brute force. The philosophy is "let's lock this shit down before we turn into Argentina."
Takaichi picked doves. And not just any doves — pedigreed doves bred in the tradition of ultra-loose monetary policy that Japan has practiced for decades.
Why this matters (and not just for Japan)
Japan is the fourth largest economy in the world. The yen is one of the most traded currencies on the planet. When the BoJ decides to keep the cheap money party going, it ripples through everything:
Carry trade. Remember the beating global markets took in August 2024 when the BoJ flirted with raising rates? The carry traders — who borrow in cheap yen to invest in higher-yielding assets — nearly tanked stock markets worldwide. With dovish candidates, the message is: "Chill out, the carry trade party's still on."
The dollar. A weaker yen means a stronger dollar in the pair. And a strong dollar has a direct impact on Brazil — commodities get cheaper in dollar terms, but the real faces indirect pressure.
Japanese inflation. Japan spent 30 years fighting deflation. Now that it finally has inflation above 2%, Takaichi seems to be saying: "We're not tightening yet." It's a risky bet. Because inflation is like fire — easy to start, hard to control.
The political game behind it
This is where things get truly interesting.
Takaichi isn't an economist. She's a politician. And politicians, everywhere in the world, love low interest rates. Know why? Because low rates make the economy look good in the short term. Cheap credit, stocks going up, companies hiring.
The problem is it comes at a cost down the road. Ask Americans about 2008. Ask Argentinians about... any year, really.
Nassim Taleb would say this is the textbook definition of fragility: optimizing for the short term and transferring the risk to the future. Who foots the bill when the yen finally melts down? Not the prime minister. It's the Japanese retiree watching their purchasing power evaporate.
Zero skin in the game.
What to watch now
The BoJ has a meeting scheduled and markets will be trading on every word, every comma, every sigh from the new nominees. If they confirm the dovish stance in practice — and not just in signaling — expect:
- The yen testing new lows against the dollar
- Carry trade coming back in full force
- Volatility in emerging market currencies, including the Brazilian real
If by some miracle the nominees show independence and surprise with a hawkish tone, then we'll have a plot twist worthy of M. Night Shyamalan.
But I wouldn't bet on it. Politicians pick soldiers who follow orders, not generals who think for themselves.
The question that lingers is this: if even Japan — a country known for discipline — is choosing the easy road of the money printer, who in the world is going to have the guts to do the right thing?
