Endless Plunge: Yen Value Crashes to 40-Year Low, Future Remains in Uncharted Territory

The "super-weak yen," a phenomenon not seen in 40 years, is shaking the Japanese economy.

Although the Japanese government has deployed its largest-ever foreign exchange market intervention and raised benchmark interest rates, the market appears unmoved.

Warnings of an "endless plunge" are now emerging.

Japan's Nikkei newspaper reported that in the New York foreign exchange market yesterday, the yen exchange rate fell to 161.98 yen per dollar, breaking through the 161.96 yen per dollar level—the low point from July 2024 that had been considered a psychological support line.

This marks the lowest level in 40 years, since December 1986, shortly after the Plaza Accord.

Analysts attribute the decline in the yen's value to strong market expectations that the U.S. Federal Reserve will raise interest rates within the year, driven by inflation and continued employment recovery following the Iran war, which in turn strengthens the dollar.

The broader trend of the yen's depreciation began in 2022, with the currency falling nearly 30 percent against the dollar over the past four and a half years.

In particular, the selling pressure on the yen intensified after Prime Minister Takaichi signaled last year that she would pursue policies oriented toward monetary easing, such as increasing the money supply and keeping interest rates low.

Since March of this year, the Iran war has accelerated the flight of capital toward the dollar, a safe-haven asset, while China's tightened export controls have added further economic pressure on Japan.

As the weak-yen phase began in earnest, the Bank of Japan has been making a sudden shift from the easing policy it had maintained for about a decade.

The policy interest rate, which was previously negative, has turned positive, and on the 16th, it was raised to 1 percent, the highest level since 1995.

However, because real interest rates—adjusted for inflation—remain low, there is a growing view that interest rate hikes are failing to keep pace with inflation, leaving deep-seated pressure to sell the yen.

Concerns about the Japanese economy are also mounting, as the rising cost of imports such as crude oil and natural gas, which are settled in dollars, is causing prices to soar across the board, from food to electricity bills.

The bigger problem is that the yen's weakness has not stopped despite the Japanese government's record-breaking market intervention.

NHK expressed concern, stating, "If the yen's value falls to the levels seen in December 1986, there will be no reference data on the charts, and it will enter an 'uncharted state' where it is impossible to know how far it might fall."

Reported by Kim Min-jung | Video by Ryu Ji-soo | Graphics by Lee Jung-ju | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.