Media365
Japan’s yen has tumbled to its weakest level against the US dollar in four decades, piling pressure on Tokyo to step in once again to defend its currency as policymakers warn they are prepared to act “at any time” against excessive market moves.
The yen slid past 162 per dollar on Tuesday, touching 162.27, its weakest level since 1986, despite repeated warnings from Japanese authorities. The sharp depreciation has renewed speculation that the government could soon intervene directly in the foreign exchange market, even as analysts warn that such action may provide only temporary relief.
Tokyo signals readiness to intervene
Japanese Finance Minister Satsuki Katayama sought to reassure markets that authorities remained prepared to respond if currency movements became excessive.
“We stand ready to respond appropriately against currency moves at any time,” Katayama told reporters, adding that this included “taking decisive action,” in line with the understanding reached between Japan and the United States.
Chief Cabinet Secretary Minoru Kihara echoed that message, saying the government would continue building an economy that is more resilient to exchange-rate volatility while remaining prepared to intervene in currency markets if necessary.
Neither official commented on specific exchange-rate levels. However, shortly after Kihara’s remarks, the yen weakened further, sending the dollar above 162 yen for the first time in nearly 40 years.
Why is the yen falling?
The yen’s prolonged weakness reflects a combination of monetary policy divergence, resilient US economic data and improving global risk sentiment.
The biggest driver remains the widening interest-rate gap between Japan and the United States.
While the US Federal Reserve has maintained relatively high interest rates to keep inflation under control—and traders are pricing in a 63 per cent probability of another rate hike by September—the Bank of Japan (BOJ) has continued to raise rates only gradually after ending years of ultra-loose monetary policy.
That gap makes dollar-denominated assets significantly more attractive than Japanese investments, encouraging investors to move money into the United States while selling the yen.
Market attention is now firmly on Thursday’s US non-farm payrolls report, which is expected to provide fresh clues about the Fed’s next move. According to a Reuters poll, the US economy likely added 110,000 jobs in June, while the unemployment rate is expected to remain at 4.3 per cent.
A stronger-than-expected report could reinforce expectations that US interest rates will remain elevated for longer, putting additional pressure on the Japanese currency.
Risk appetite is also hurting the yen
Beyond interest-rate dynamics, the yen has also lost support from improving investor sentiment.
Signs that the United States and Iran could resume diplomatic talks this week, together with a technology-led rally on Wall Street, encouraged investors to move into riskier assets. Such “risk-on” sentiment typically reduces demand for traditional safe-haven currencies like the yen.
Although Iran later said no meeting had yet been scheduled, hopes of renewed diplomacy helped ease some geopolitical anxiety that had previously supported the Japanese currency.
Why hasn’t intervention worked?
Japan has already spent heavily trying to stabilise the yen.
Authorities intervened in the foreign exchange market in late April and early May, spending around 11.7 trillion yen (approximately $72 billion) buying the Japanese currency. The intervention briefly strengthened the yen before market forces pushed it lower again.
Adding to Tokyo’s challenge is the growing conviction among hedge funds and other investors that the yen will continue to weaken.
Latest data from a US regulator show speculative traders have accumulated $11.3 billion worth of net short positions against the Japanese currency, close to the highest level in two years.
Those bets reflect expectations that US interest rates will remain higher than Japan’s for an extended period, encouraging investors to continue favouring the dollar.
Can Tokyo stop the slide?
Most economists believe Japanese authorities can slow the pace of the yen’s decline but cannot reverse it unless broader market conditions change.
Currency intervention can temporarily reduce volatility or discourage speculative trading. However, unless the gap between US and Japanese interest rates narrows meaningfully, investors are likely to continue favouring the dollar.
That leaves Thursday’s US jobs report as the next major catalyst.
If the labour market remains resilient, expectations of higher US interest rates could push the yen to fresh multi-decade lows, increasing pressure on Tokyo to intervene once again.
If, however, employment data disappoint and revive expectations of a softer Federal Reserve, Japanese authorities may find it easier to stabilise the currency.
For now, markets remain sceptical that intervention alone can alter the yen’s long-term trajectory, leaving policymakers caught between defending the currency and confronting powerful global monetary forces.
