Japan’s currency has hit its weakest level against the US dollar in nearly four decades, highlighting the growing strain on the world’s third-largest economy and raising fresh fears that Tokyo may once again step into the market to stop the slide.
The yen weakened to 162.27 against the US dollar on Tuesday, its lowest level since 1986, as traders continued to favour the greenback amid expectations that US interest rates will remain high for longer, according to Reuters.
The sharp decline has once again put ‘s finance ministry under pressure, with markets increasingly expecting another round of currency intervention.
The biggest reason is the widening gap between interest rates in the US and Japan.
While the US Federal Reserve has kept interest rates elevated to fight inflation, the Bank of Japan has been far more cautious in tightening monetary policy.
Higher US interest rates make dollar-denominated assets more attractive, prompting investors to move money into the dollar and away from the yen.
The Japanese currency is now headed for its fourth straight quarterly decline against the dollar, its longest losing streak since 2022, Reuters reported.
Japan has already spent billions of dollars trying to support its currency.
According to Reuters, Tokyo has intervened in the foreign exchange market and the Bank of Japan has raised interest rates in recent months. However, those measures have had only a temporary impact as markets continue to focus on the US Federal Reserve’s hawkish stance.
“It’s a question of when, not if, the Ministry of Finance intervenes again to support the yen,” Carol Kong, currency strategist at Commonwealth Bank of Australia, told Reuters.
However, she added that any intervention is unlikely to reverse the broader trend, with the bank expecting the dollar-yen pair to rise further to 164 by early 2027.
Matt Simpson, Senior Market Analyst at StoneX, echoed that view.
“The Ministry of Finance will intervene if they can, but they can’t, as they know they’re currently swimming against the tide of a hawkish Fed,” he told Reuters.
He added that any surprise weakness in upcoming US economic data could strengthen the case for intervention if it also weakens the dollar.
Markets are now closely watching Thursday’s US jobs report, which could determine the Federal Reserve’s next move on interest rates.
According to a Reuters poll, economists expect the US economy to have added around 110,000 jobs in June, while the unemployment rate is expected to remain at 4.3%.
A stronger-than-expected report could reinforce expectations of another US rate hike, putting further pressure on the yen.
A weaker yen is a double-edged sword for Japan.
On one hand, it makes Japanese exports such as cars, electronics and machinery cheaper overseas, benefiting exporters like Toyota and Sony.
On the other hand, it makes imports—including crude oil, natural gas and food—more expensive, adding to inflation and increasing costs for households and businesses.
The latest weakness also comes at a time when geopolitical tensions in West Asia continue to cloud the global economic outlook.
According to Reuters, the recent conflict involving the US and Iran has fuelled inflation concerns and complicated the outlook for global interest rates, making it even harder for the yen to recover.
The yen’s decline may appear to be a distant event, but it has wider implications.
Sharp moves in major currencies often influence global capital flows and investor sentiment towards emerging markets, including India.
For Indian tourists and students, however, a weaker yen could make travel and living expenses in Japan relatively cheaper when converted into rupees.
For investors, the bigger takeaway is that the yen’s fall underscores how strongly global markets remain tied to US interest-rate expectations. Unless the Federal Reserve signals a softer policy stance or Japan tightens monetary policy more aggressively, analysts believe the pressure on the Japanese currency is unlikely to ease anytime soon.