Japanese Yen Reaches Four-Decade Low Against US Dollar: Understanding the Currency’s Depreciation
The Japanese yen has fallen to its lowest level against the US dollar since 1986, raising concerns among policymakers about potential intervention to stabilize the currency. During trading in New York, the yen dropped below 161.95 per dollar, surpassing the previous low from July 2024, which prompted Japanese authorities to act. The currency continued its decline in Tokyo, reaching 162.40 against the dollar despite verbal interventions from government officials.
Yen at Record Low
The yen’s current weakness contrasts sharply with its performance in the past. According to a Bloomberg report, the last time the yen traded at these levels, it was strengthening following a currency agreement brokered by the United States. At that time, Japan was experiencing an asset-price bubble, while global events like the Chernobyl disaster were unfolding. Today, the yen’s depreciation is attributed to Japan’s gradual emergence from decades of economic stagnation. While a weaker yen has benefited export-oriented companies and contributed to record highs in the stock market, it has also raised import costs, particularly for oil and natural gas, leading to inflation and increased living expenses for households.
Market analysts are closely watching for any signs of intervention from Japanese authorities. Yujiro Goto, Chief FX Strategist at Nomura Securities, noted that today’s focus will be on whether the government will take actual steps or issue stronger verbal warnings. The yen’s decline has persisted even after the Bank of Japan ended its negative interest rate policy in 2024, raising its benchmark interest rate to 1%—the highest since 1995. However, this move has had little effect on the currency, as the US Federal Reserve maintains a hawkish stance, encouraging investors to borrow in yen and invest in higher-yielding assets abroad.
Intervention on the Cards?
Attention is now on whether Japanese authorities will intervene again to support the yen. The recent drop beyond 161.95 per dollar has pushed the currency out of its recent trading range, but it has not yet triggered a significant sell-off. The scale of Japan’s previous intervention, which totaled ¥11.73 trillion ($72.4 billion) between late April and late May, underscores the government’s commitment to defending the yen. However, influencing the global foreign exchange market remains a challenge, with approximately $9.5 trillion traded daily.
Japan’s vulnerability to geopolitical tensions, particularly in the Middle East, adds another layer of complexity. The country relies heavily on energy imports, with most crude oil sourced from the region. Although recent hopes for a peace agreement have eased oil price pressures, they have not provided substantial support for the yen. Structural issues, including a wide interest rate differential and an aging population, continue to weigh on the currency’s outlook. Finance Minister Satsuki Katayama has stated that authorities are prepared to take “bold action” against excessive speculative movements in the foreign exchange market, emphasizing alignment with US currency policy.
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