The Japanese yen slid to its weakest level against the US dollar in four decades on Tuesday, falling to around 162.4 per dollar in Asian trading — its lowest since 1986 — and putting markets on alert for fresh intervention by Tokyo to halt a decline that record currency sales and higher interest rates have so far failed to stop.
Japan's finance minister, Satsuki Katayama, responded by saying the government was ready to take 'appropriate' and even 'decisive' action against excessive currency moves, adding that she had confirmed with Washington that such a step remained an option. Analysts said the immediate risk of intervention was high, with speculative bets against the yen near multi-year peaks and a fresh four-decade low sharpening political anxiety in Tokyo.
The currency's weakness is rooted in the gap between Japanese and US interest rates. Even after the Bank of Japan raised its benchmark to 1% in mid-June — its highest since 1995 — Japanese yields remain far below those available in the United States. That gap sustains the so-called carry trade, in which investors borrow cheaply in yen to buy higher-yielding assets elsewhere, a flow that continually pressures the currency lower.
Tokyo has already spent heavily trying to slow the slide. Between April and May, Japan deployed more than 11.7 trillion yen — roughly $72.8 billion — of its foreign reserves to support the currency, one of the largest intervention campaigns on record. The yen briefly steadied near 160 to the dollar after that effort but has since resumed its descent, pushing past 161 in mid-June and through 162 this week.
The renewed pressure comes against a tense geopolitical backdrop. A weaker yen has been compounded at times by a firmer dollar, which strengthened during bouts of Gulf hostilities earlier in the month as investors sought safety. With energy prices volatile and the Strait of Hormuz still a live risk, Japan — a major energy importer — faces higher costs precisely when its currency is at its weakest.
For Japanese households and businesses, the weak yen is a double-edged sword. It boosts the value of overseas earnings for big exporters and supports a record inbound tourism boom, but it raises the price of imported food, fuel and raw materials, feeding the cost-of-living pressures that have dogged successive governments. Persistent yen weakness has become a recurring political headache, and a fresh 40-year low intensifies calls for action.
Markets now turn to whether the Ministry of Finance will order the Bank of Japan to step into the market, and at what level. Traders cautioned that intervention can slow but rarely reverses a currency trend driven by interest-rate differentials, meaning any bounce could prove temporary unless the rate gap with the United States narrows. For global investors, the bigger worry is a disorderly unwinding of yen-funded carry trades, which can amplify moves across stocks and bonds well beyond Japan.