For several years, Masato Kanda hardly slept. “Three hours a night is an exaggeration,” Kanda chuckles as he recalls his grueling schedule from his office in Tokyo. “I slept for three hours consecutively before being woken up, but I then went back to bed, so if you add them up, I got a bit more.”
This relentless pace became the norm for Kanda during his tenure as Japan’s Vice Finance Minister for International Affairs, colloquially referred to as the nation’s “Yen Czar.” The 59-year-old bureaucrat’s most daunting responsibility was safeguarding Japan’s currency against speculators, whose actions could destabilize one of the world’s largest economies.
When Kanda stepped down at the end of July, the global financial community took stock of his three years in office. For Japan, the yen’s rollercoaster trajectory during this period became a focal point of discussion, underscoring not only the challenges of managing the currency but also the unique approach Japan employed to weather the storm.
For much of its post-war history, Japan’s government had intervened in the currency market to weaken the yen, making Japanese exports like cars, electronics, and machinery more competitive in global markets. A weaker yen meant overseas buyers could purchase products from companies like Toyota, Honda, and Sony at cheaper prices, boosting Japan’s manufacturing-driven economy.
However, by the time Kanda took office in 2020, the landscape had dramatically shifted. Japan’s currency was not too strong; it was too weak. The yen had plummeted in value, which was a double-edged sword. While a weaker yen helped exporters, it increased the cost of importing critical goods like food and fuel. This presented a new challenge for a country more accustomed to deflation than inflation. The rising costs of imports triggered a cost-of-living crisis, hurting everyday Japanese consumers who faced skyrocketing prices at the grocery store and gas pump.
During Kanda’s time in office, the yen’s value dropped more than 45% against the US dollar, reflecting global market turbulence and speculation. This sharp depreciation put the government in a precarious position: should they intervene to stop the yen’s slide, or let market forces play out?
The $170 Billion Intervention: A Gamble or a Necessity?
To curb the yen’s descent, Kanda and his team unleashed a dramatic and unprecedented intervention, spending an estimated ¥25 trillion ($173 billion) in the currency markets. It was Japan’s first direct currency intervention in almost a quarter of a century. The goal was to prop up the yen and fend off speculative attacks that were further driving the currency down.
“The Bank of Japan and the Ministry of Finance are very clear,” explains Jesper Koll, an economist familiar with Japanese fiscal policy. “They intervene not at a particular level of the currency, but when market volatility is too much.”
However, Japan’s heavy-handed approach caught the attention of international regulators, including the U.S. Treasury. Japan was placed on a watchlist of potential currency manipulators, a label that comes with diplomatic scrutiny. But Kanda is quick to argue that his actions weren’t about manipulation but stability.
“Markets should move based on fundamentals,” Kanda asserts. “But occasionally, they fluctuate excessively because of speculation, and they don’t reflect fundamentals, which don’t change overnight. When it affects ordinary consumers who have to buy food or fuel, that is when we intervened.”
Japan’s decision to intervene rather than raise interest rates stood out. Countries like the U.S. and U.K. typically increase interest rates to strengthen their currencies, making investments in their economies more attractive. However, Japan, with its stagnant economic growth and low inflation for decades, had been reluctant to raise borrowing costs. For years, the country had stuck to ultra-low interest rates to spur investment and prevent deflation from further slowing its economy. Raising rates could hurt Japan’s fragile recovery.
A Criticized Move, Yet Necessary
To some observers, Japan’s actions appeared desperate. After all, currency interventions are expensive and risky. Could ¥25 trillion be considered a waste of taxpayer money, especially if the yen continued its freefall?
Kanda disagrees. He points out that Japan’s currency interventions ultimately turned a profit, even though that was never the goal. “It is not up to me to evaluate,” he says. “But many say our exchange management stopped the excessive level of speculation.” For Kanda, the interventions were a necessary step to protect consumers from the worst impacts of a plummeting yen.
Still, the intervention reignited debates over Japan’s monetary strategy. “It is not the right thing to do,” acknowledges Professor Seijiro Takeshita from the University of Shizuoka, “but in my opinion, it is the only thing they can do.” With interest rates already at rock-bottom levels, Japan had no other choice but to take direct action in the currency markets.
Ironically, the yen staged a recovery without further intervention from Kanda or his successor. In late 2023, the Bank of Japan (BoJ) surprised the markets by tweaking its monetary policy, signaling a more hawkish stance. Coupled with a new prime minister taking office, market sentiment shifted. The yen surged in value, bolstered by rising optimism in Japan’s economic prospects and the BoJ’s newfound willingness to consider interest rate hikes.
This rapid rebound raised questions: Did Japan even need to spend ¥25 trillion? Was Kanda’s aggressive intervention premature?
Kanda, ever the diplomat, avoids framing the issue in black-and-white terms. He maintains that while Japan’s currency markets are difficult to predict, the intervention was not a mistake. “Markets or historians should be the final judges,” he says. “We will see how the situation evolves.”
Japan’s Economy
Despite the challenges of managing the yen, Kanda remains optimistic about Japan’s economic future. After decades of economic stagnation, there are signs that Japan could be turning a corner.
“We are finally seeing investments and wages rising, and we have a chance to go back to a normal market economy,” Kanda observes. His statement reflects a broader sentiment that Japan’s long-stagnant economy may be on the verge of revival. Prime Minister Fumio Kishida’s government has emphasized boosting wages and increasing investments in digital technology and green industries, all of which could create a more dynamic and sustainable economy in the years to come. The era of deflation—where falling prices discouraged investment and consumption—might be coming to an end, and Kanda sees this as an opportunity for Japan to regain its economic footing.
Beyond his currency interventions and economic policies, Masato Kanda has left an unexpected mark on popular culture. Despite his self-description as a “humble public servant,” Kanda found himself at the center of an online phenomenon in Japan. Social media users began creating AI-generated dancing videos featuring him, celebrating his surprising ability to move financial markets with a single announcement.
This viral internet trend earned Kanda an unusual kind of fame. Known for his serious demeanor and meticulous approach to monetary policy, Kanda’s juxtaposition as a “dancing bureaucrat” amused and captivated netizens. Although the videos were made in jest, they highlighted the public’s awareness of his critical role in shaping Japan’s economic landscape.
As Kanda steps away from his role as Vice Finance Minister, Japan’s economic and currency challenges remain unresolved. His tenure was marked by decisive, if controversial, actions to stabilize the yen and safeguard consumers from economic turbulence. While the long-term effects of his interventions are still up for debate, Kanda’s time in office will be remembered as a period of intense global scrutiny and complex decision-making.
Looking forward, the question remains: can Japan sustain the momentum it has recently gained, or will the yen’s volatility and economic headwinds persist? As markets and historians evaluate Kanda’s legacy, the future of Japan’s economy rests in the hands of those who will follow in his footsteps.
