TOKYO, July 5 — The story begins with a number that hasn’t been seen in about forty years: the yen trading in the 162 range against the dollar. For those who remember 1986, the last time the currency was this weak, the world looked very different. Back then, Halley’s Comet was making its closest approach in 76 years, and Fujifilm had just launched the world’s first disposable camera with a built-in lens.
It was the start of the bubble economy, a time when the country was described overseas as “Japan as No. 1.” The yen, at that moment, was actually strengthening. Now, the mood has shifted.
Japan is celebrating the gold medal won by figure skating pair Riku Miura and Ryuichi Kihara, known as RikuRyu, and excitement over the soccer World Cup. But economically, the country is increasingly viewed from abroad as “Cheap Japan,” where a weaker yen makes almost everything look inexpensive to foreign visitors and investors. At its heart, the current slide is driven by the interest rate gap between Japan and the United States, with dollar-denominated assets offering higher returns.
Concerns over expansionary fiscal policy also weigh on the currency. But analysts point to a longer-term factor.
Masashi Hashimoto of the Institute for International Monetary Affairs said Japan’s declining international competitiveness has become a structural driver of yen weakness. The evidence is in the trade data. In 1986, Japan had a trade surplus of more than 13 trillion yen, making it the world’s largest trade-surplus nation.
By 2025, Japan had posted a trade deficit of nearly 3 trillion yen, meaning it paid more for imports than it earned. For those involved in Japan’s export industries and financial markets, the contrast between the two eras is stark. Four decades ago, the country was climbing toward the height of its economic power.
Today, the weaker yen reflects not just monetary policy but a fundamental shift in Japan’s place in the global economy. What unfolds next depends on whether policymakers can address the structural issues behind the decline, or whether the yen’s fall is simply the new normal for a nation now seen as “Cheap Japan.”
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