Yen Falls to Four-Decade Low as Fed Strength Overpowers Tokyo

The Japanese yen dropped to its weakest level against the US dollar in four decades, Euronews reported, trading near 162 per dollar and breaking past the 161.95 mark last seen in July 2024. The move keeps investors watching for emergency action by Tokyo to slow a decline that higher interest rates and earlier intervention have not halted.

The Bank of Japan raised its benchmark rate to 1% on June 16, its highest since 1995 according to CNBC, yet the currency kept falling. The main cause is in the United States, not Japan. Traders expect the Federal Reserve (Fed) under chair Kevin Warsh to maintain a hawkish stance, keeping interest rates relatively high, and the wide gap between US and Japanese interest rates continues to attract capital to dollar assets. Finance Minister Satsuki Katayama said the government stands ready to take appropriate action against excessive moves, the standard language that has preceded past interventions. Japan spent 11.73 trillion yen, about $72.5 billion, defending the currency between late April and late May.

From a sound-money view, the yen's decline is the visible cost of two decades of the most aggressive monetary expansion among large economies. Years of near-zero interest rates and bond buying built up distortions that a single 1% policy rate cannot quickly unwind, and each intervention spends real reserves to defend an exchange rate the market keeps moving away from. Other markets moved in the opposite direction. In Tel Aviv, the benchmark index rose about 1%, helped by a global recovery in chip shares and easing tension in the Persian Gulf, even as the exchange headed for a monthly decline of nearly 10%.