The last time the Japanese currency traded at these levels was almost 40 years ago.
Returning to the past, or when Top Gun ruled the screens
The world looked very different then, with the peak of Japan’s speculative bubble approaching, the Soviet Union cleaning up after the Chernobyl disaster, and the film “Top Gun” catapulting Tom Cruise to Hollywood stardom.
At that time, however, the yen was falling with force in the opposite direction, driven by the famous Plaza Accord, which was meant to weaken the US currency.
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Today the direction of movement is dramatically reversed, and the effects of this push are felt across the entire market. A weak yen is a classic double‑edged sword. From the perspective of tech giants and exporters such as Toyota or Sony, a low valuation of the domestic currency is great news.
When profits from abroad are converted into yen, they swell in eyes, driving the main Tokyo stock index to historic highs.
On the other hand, the medal has a dark reverse side and rising import costs drain citizens’ wallets. Everything from food to electricity becomes more expensive, sparking inflation and threatening the stability of Prime Minister Sanae Takaichi’s government.
Read also: Will the dollar’s rate be on a long road to 4 PLN? The expert issued forecasts for USD/PLN and EUR/USD. “The dollar could gain.”
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Carry trade, or why capital ruthlessly leaves Tokyo
Why is the currency of a tech superpower bleeding, when the Bank of Japan (BOJ) finally abandoned negative interest rates? The answer lies in simple market math and the “carry trade” mechanism.
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Under new BOJ leadership, the bank raised interest rates on 16 June to 1%, the highest level since 1995, but that is still too little for investors. Meanwhile the US Fed keeps a hawkish stance, and US rates remain dramatically higher.
Until this gap (interest‑rate differential) narrows, big players have perfect conditions to profit: they borrow cheap capital in yen, immediately convert it to USD, and invest in high‑yield assets overseas. This constant outflow of capital pulls the yen to the bottom.
Speculators also lost blood when government policy guidelines came to light.
Tokyo authorities appeal for “appropriate” monetary management, which the market read directly. The government fears rate hikes due to the gigantic debt of an aging society and pressures the BOJ to act extremely sluggishly.
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What next on the charts? Strategists point to another target
Since the historic barrier from 1986 was broken, traders’ attention quickly shifted to new levels.
Market strategists, including Bloomberg experts, say the entire world’s finance eyes are now on the 164‑165 yen per USD range.
If the yen’s sell‑off dynamics accelerate, Japanese authorities will be forced to reopen reserves and intervene to buy their own currency. Katayama assures that after talks with US Treasury Secretary Scot Bessent, the positions of both powers are aligned.
However, until the interest‑rate disparity remains unchanged, the yen will remain only a pawn of global funds.
Chart. Dollar to yen rate (USD/JPY)
Source: Trading Economics.
Read also: The dollar before a chance to break out? Expert: “Capital will flow back to USD.”
See also: The dollar before a “nervous and dynamic” move, the euro waiting to fall? Expert issued a forecast for USD/PLN and EUR/USD.
Source: Bloomberg.
