It was 1986. Halley’s Comet swung by Earth for the first time in 76 years. Fujifilm sold the world’s first disposable camera with a built-in lens.
Japan’s trade surplus topped 13 trillion yen. The country was the world’s largest trade-surplus nation.
The yen was strengthening. Now, four decades later, the yen trades in the 162 range against the dollar. That number has not been seen in about forty years.
The last time was 1986. The slide did not happen overnight.
It built over years, driven by a single, persistent force: the interest rate gap between Japan and the United States. Dollar-denominated assets offer higher returns. Investors chase them.
The yen falls. But the deeper story is structural. Japan’s trade balance flipped.
In 1986, the country exported far more than it imported. By 2025, Japan posted a trade deficit of nearly 3 trillion yen.
It now pays more for imports than it earns from exports. That is the raw math of a nation that once dominated global trade. Masashi Hashimoto of the Institute for International Monetary Affairs identified the long-term driver.
Japan’s international competitiveness has declined, he said. That decline has become a structural driver of yen weakness.
Not a temporary blip. A permanent shift. The mood in Japan has changed to match.
In 1986, the world saw “Japan as No. 1.” The bubble economy was just beginning. Now, the country is viewed from abroad as “Cheap Japan.” A weaker yen makes almost everything look inexpensive to foreign visitors and investors. That is the new label.
Concerns over expansionary fiscal policy also weigh on the currency. The government continues to spend.
Markets take note. The yen weakens further. For those in Japan’s export industries and financial markets, the contrast between the two eras is stark.
Four decades ago, the country was climbing. Now, it is sliding.
The numbers tell the story. The trade surplus of 13 trillion yen became a deficit of nearly 3 trillion yen. The yen that strengthened in 1986 now sits at a 40-year low.
Japan celebrated gold medals in figure skating — Riku Miura and Ryuichi Kihara, the pair known as RikuRyu, won. Excitement over the soccer World Cup filled the streets. But the economic mood is different.
The phrase “Cheap Japan” has replaced “Japan as No. 1.” The yen hit the 162 range in early July 2025. That is the number.
That is the record. It happened because the interest rate gap persisted, because the trade surplus turned to deficit, because competitiveness eroded. Step by step, year by year, the currency lost ground.
The result is a 40-year low.
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