The yen falls to a 40-year low amid the downward spiral of policy credibility and exchange rates

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智通财经2026/07/22 13:51

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The USD/JPY exchange rate has risen above the 163.00 mark for the first time since 1986, setting a new historic point for the world’s second most-traded currency pair. Alongside the yen’s plunge, international investors continue to question the credibility of Tokyo’s policy stance.
The immediate driver behind the yen's weakness is the strengthening US dollar. A secondary global energy shock has reignited inflation expectations, pushing US Treasury yields higher. While most major currencies have depreciated against the dollar, Japan is particularly vulnerable because around 90% of its energy is imported, with about 95% of that coming from the Middle East. This makes Japanese government bonds especially fragile amid a sell-off of sovereign debt in developed markets.
However, the deeper issue is that even after crude oil prices saw a significant cumulative decline from May to June, the yen failed to gain support. Recent policy measures that should theoretically benefit the yen—such as encouraging pension funds to increase allocations to domestic financial assets—have also had little effect, with markets remaining unconvinced by these signals.
Since 2022, the Ministry of Finance has repeatedly intervened by buying yen, with the most recent intervention costing around $73 billion and total interventions amounting to about $215 billion. While these actions bought some time, they failed to reverse the trend, highlighting deeper market dissatisfaction with Japan’s policy mix: loose fiscal discipline, insufficient monetary tightening, and ongoing concerns over the ambiguous relationship between the two, which continues to raise doubts about the central bank’s independence.
Japan appears to be trapped in a policy “death spiral,” with its export capabilities increasingly constrained. Unless there is a substantial overhaul of the policy framework, it will be difficult to fundamentally reverse the yen’s weakness under the dual pressure of interest rate differentials and economic fundamentals.

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智通财经•2026/08/16 04:36