The yen slid to its weakest level against the dollar since 1986, a milestone that will generate unease in Japan and put traders on high alert for authorities wading into the market.
The currency depreciated 0.2% to touch 161.98 versus the greenback in New York trading, breaching the 161.95 mark touched in July 2024 during an earlier campaign by Japan to shore up the exchange rate.
The last time the yen traded at this level it was barreling in the opposite direction, midway through a massive and years-long rally that followed a currency accord engineered by the US. The world was a different place — Japan’s asset bubble was still forming, the Soviet Union was cleaning up after the Chernobyl nuclear disaster and Top Gun had just launched Tom Cruise toward the pinnacle of Hollywood stardom.
This time, the yen is sliding, and Japan is on its way out of an economic funk that lasted for a generation. The currency weakness is boosting the profits of exporters, and in turn helping the nation’s stock market to record highs.
But import costs are swelling, notably for oil and gas shipments priced in dollars. The ensuing inflation is hurting consumers, who are paying more for everything from food to electricity, and threatening to undermine the popularity of Prime Minister Sanae Takaichi’s government.
The currency has backed away from the weak point and was trading at 161.92 as of 8:19 a.m. Tokyo time.
The yen’s slump has continued in the face of regime change at the Bank of Japan, which ended a negative interest-rate policy in 2024 — a change that had raised expectations for a revival in the currency.
“Intervention is right around the corner if we don’t see a quick correction,” said Andrew Hazlett, a foreign-exchange trader at Monex Inc. Still, intervention is “only a temporary fix if they do not address the interest-rate differential.”
The BOJ lifted its benchmark interest rate on June 16 to 1%, the highest since 1995. Yet the impact was minimal, as traders expect the Federal Reserve to stay hawkish going forward. The Japanese government is also expected to call for “appropriate” monetary management in its basic policy guidelines, in an apparent bid to dissuade the central bank from further interest rate hikes.
The persistent softness of the yen also came in the face of a record ¥11.73 trillion ($72.5 billion) intervention by the government from April 28 to May 27 after it first slid past 160 per dollar. That bout of purchasing likely saw Japan draw on its holdings of foreign securities, including US Treasuries, to finance the currency defense, according to Finance Ministry reserve data.
“Doubtless, the Bank of Japan is watching things closely,” Shaun Osborne, Scotiabank’s head of currency strategy, said after the yen crept past the key level on Monday.
The huge amount spent underscores not only how much is at stake for Japan, but also the difficulty involved in pushing back against the tide in the $9.5 trillion-a-day global foreign exchange market.
Japanese Finance Minister Satsuki Katayama reiterated on June 19 that authorities were ready to take “bold action” to damp excessive speculative moves in the foreign exchange market. Katayama also said that the US and Japan are increasingly “aligned” on foreign exchange policy after her meeting with US Treasury Secretary Scott Bessent, and that they agreed to take “bold steps” on currencies if needed.
Bouts of intervention in 2022, when Japan came in to support the yen for the first time since 1998, and again in 2024, helped bring temporary relief before the currency resumed its depreciation trend. In the most recent case that started on April 30, authorities entered the market several times to defend the currency.
“Today’s focus will be whether Japanese authorities move ahead with actual intervention or stronger verbal warnings,” said Yujiro Goto, chief FX strategist at Nomura Securities, in a note.
Macro strategists at Citigroup Inc. closed a long yen trade recommendation opened in May as Japan’s Ministry of Finance failed “to send clear signals” on the possibility of intervention to support the weakening currency.
Even as Japan seeks to put the brakes on the yen’s slide, the weak currency could land the country’s carmakers a $5.8 billion profit windfall this year. Toyota Motor Corp. estimates that every ¥1 depreciation of the yen boosts its operating profit by ¥50 billion, meaning the company stands to benefit substantially from continued yen weakness.
Analysts differ on the reasons for the yen’s long decline, and if or how it can be halted. Interest-rate differentials, both current and projected, are often cited as the main cause, with persistently low domestic levels prompting investors to sell the yen and buy foreign assets.
Structural issues such as the aging and shrinking population have clouded prospects for economic growth and fueled a ballooning pile of public debt that many see as weighing on prospects for substantial rate hikes.
What Bloomberg Strategists say…
Now that USD/JPY has cracked the much talked about 1986 level, price data from that year suggests the 164-to-165 area is where FX traders will be focused. Of course, should the pace of yen weakness quicken from here, then investors will be expecting Japanese authorities to step in with purchases of the currency.
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