Yen Falls Past 163 Per Dollar to Its Weakest Since 1986 as Chip Rally Lifts Risk Assets

The Japanese yen weakened beyond 163 per US dollar on Tuesday, a level it had not touched since 1986, according to Bloomberg. The move continues a decline that CoinDesk reported alongside a second consecutive day of gains in semiconductor stocks and a bitcoin price holding near $66,300.

The immediate driver is the widening gap between two central banks. The Federal Reserve has kept policy firm, while the Bank of Japan has moved only cautiously to raise rates and the Japanese government has signaled a preference for loose monetary conditions. That gap rewards investors who borrow in yen at low cost and hold higher-yielding dollar assets, and each new low in the yen increases the incentive to do so.

Japanese authorities have tried to slow the decline. Between late April and late May, the Ministry of Finance reported roughly 11.7 trillion yen in foreign-exchange intervention, one of its largest reported totals, yet the currency has continued to fall. That the decline has persisted despite direct intervention shows how far policy interest rates, rather than one-off dollar sales, now set the exchange rate.

By the standards of sound-money thinking, the yen's decline is the direct cost of years of the cheapest credit in the developed world. A currency held down by policy directs savings toward assets priced in stronger currencies, and the same easy conditions that support Japanese borrowers also raise the prices of risk assets abroad, from chip stocks to bitcoin, as liquidity flows outward.