The dollar briefly touched 162.29 yen on Monday, as of 0600GMT. The yen has not been that weak since December 1986.
The slide came as investors kept betting that US interest rates will stay high. Anadolu Agency described it as a nearly 39-year low for the Japanese currency. EC Markets said USD/JPY climbed above 162, its strongest level in almost four decades.
The rate gap
The Federal Reserve held rates steady at its meeting last week but kept a higher-for-longer stance, according to EC Markets. Higher US Treasury yields have made dollar assets more attractive. The Fed has also signaled that another rate increase could come before the end of the year, despite pressure from US President Donald Trump for lower rates.
Japan is moving, but slowly. The Bank of Japan raised its policy rate earlier this month to 1.00% from 0.75%, the highest in 31 years. Rates there remain well below US levels.
That gap feeds carry trades, in which investors borrow in low-rate currencies such as the yen and put the money into higher-yielding assets elsewhere. EC Markets said the dollar is likely to stay well supported against the yen as long as the advantage persists.
Intervention watch
The yen had come close to 161.96 per dollar in July 2024, a level markets watch closely because of Japan’s history of stepping in. Tokyo has intervened several times to slow the decline, most recently from late April into May. Selling pressure returned each time as investors focused on yield differentials and Japan’s fiscal outlook.
Prime Minister Sanae Takaichi’s push for extra spending, along with a temporary freeze on the consumption tax for food and beverages, has put attention on Japan’s already heavy debt.
Japanese officials have warned they could act again if sharp moves continue. Finance Minister Satsuki Katayama said last week that Japan and the US had agreed to take decisive action if needed, after talks with Treasury Secretary Scott Bessent. EC Markets noted that officials have not signalled that action is imminent.
Cost at home
A weak yen cuts both ways. It raises the value of overseas earnings for Japanese exporters when converted back into yen. It also pushes up the cost of imported goods, energy and raw materials, which adds to inflation pressure on households and businesses. Anadolu pointed in particular to energy and food in a resource-poor country.
Traders are now watching upcoming US inflation figures, comments from Fed officials and future Bank of Japan decisions.
Sources
- USD/JPY Reaches Highest Level Since 1986 on Fed and BoJ Policy Divergence
- Yen sinks to 39-year low of 162 against dollar amid US rate concerns
