Yen hits 40-year low, signals growing monetary policy constraints for Japan

The Story in Brief

The Japanese yen has fallen to its weakest in nearly four decades, breaching 160 per dollar since 1986. The dollar-yen is the second most‑traded pair; the move prompted interventions by Japanese authorities and the US. The slide reflects a persistent interest‑rate gap with the US, higher energy import bills and decades of monetary easing that limit Tokyo’s scope to raise rates. Over five years the average dollar-yen rate in Tokyo weakened from about 104 in January 2021 to around 163 in July 2026, a depreciation of more than 50%. The Bank of Japan raised its policy rate to 1% in June, its highest since the 1990s, but Japan’s 10‑year yield at about 2.6% remained well below the US 10‑year yield of 4.4%, with the Federal Reserve’s policy rate at 3.5-3.75%. Heavy reliance on imported energy – roughly 90% of crude from West Asia – coincided with trade deficits of ¥391.8 billion in May and ¥406.9 billion in June. The yen carry trade and dollar‑priced energy could reinforce downward pressure on the yen.

The Indian Opinion

Some coverage frames the yen’s fall as an imminent crisis for Japan’s economy or a direct failure of policy makers. The facts in this article point to multiple interacting factors – global rate differentials, energy import dependence, large central bank balance sheet and high public debt – that constrain policy choices. It is reasonable to question strong, one‑sided narratives that attribute the slide to a single cause or expect quick fixes such as sharp interest‑rate rises; the BoJ’s asset holdings and Japan’s fiscal position make aggressive tightening risky. At the same time, uncertainty remains about how persistent external shocks and investor behaviour will be, so conclusions about long‑term outcomes are necessarily tentative.

Original article: Yen at 40-year low reveals Japan’s deepening monetary policy constraints (www.livemint.com)

This story was summarised and commented on by AI from the source linked above.