The Japanese yen has dropped to its weakest level against the US dollar in nearly four decades, intensifying concerns that Japanese authorities could step in to support the currency. The latest decline has put traders on alert for possible market intervention as the yen slipped past levels that previously triggered action from policymakers.
The currency fell 0.2% to 161.98 per US dollar in overnight New York trading, breaking below the 161.95 level reached in July 2024 during Japan’s previous intervention campaign.
The last time the yen traded at these levels was in 1986, when it was strengthening following a US-led currency accord. This time, however, the currency is moving in the opposite direction despite Japan emerging from a prolonged economic slowdown. A weaker yen has boosted export earnings and helped lift the country’s stock market to record highs.
The slide has continued even after the Bank of Japan (BoJ) ended its negative interest rate policy in 2024. More recently, the central bank raised its benchmark interest rate to 1% on June 16, the highest level since 1995, but the move has failed to reverse the currency’s weakness.
Three factors behind the yen’s fall
1. Stronger US dollar
The US dollar rebounded on Tuesday, with the dollar index, which measures the greenback against a basket of six major currencies, recovering from the previous session’s losses to trade at 101.32. The index remains on track for a 1.4% quarterly gain after rising 1.6% during the first quarter of 2026.
According to Reuters, investor positioning data shows bullish bets on the dollar have climbed to record levels during the first half of the year, reflecting confidence that the currency will remain strong.
The strength was visible across the currency market, with the euro falling to a one-year low, while the Australian dollar, New Zealand dollar and the British pound also came under pressure.
2. Expectations of more US rate hikes
Reuters reported that the widening interest rate gap between Japan and the United States continues to weigh heavily on the yen.
Markets are increasingly pricing in the possibility of additional US Federal Reserve interest rate hikes later this year. Higher US bond yields have made dollar-denominated assets more attractive relative to Japan’s low-yielding currency, encouraging investors to shift towards the greenback.
3. Rising bearish bets on the yen
Investor confidence in further weakness of the Japanese currency has also grown. Latest US regulatory data, cited by Reuters, showed net short positions against the yen had risen to $11.3 billion, close to a two-year high.
Reuters added that the yen has remained under pressure despite Japan’s earlier market intervention worth 11.7 trillion yen ($72.25 billion) and the Bank of Japan’s recent interest rate increases. Persistent geopolitical tensions linked to the Iran conflict have kept inflation concerns elevated and added uncertainty to the global interest rate outlook, limiting support for the Japanese currency.
Global markets today
Global markets began the third quarter on a cautious note on Wednesday as investors awaited key US jobs data, while uncertainty surrounding US-Iran negotiations and the yen’s slide to a fresh 40-year low kept traders on edge. Market participants were also watching for any signs of intervention by Japanese authorities to support the currency.
Iran said on Tuesday it would not meet senior US envoys who had travelled to the Middle East, with both sides still divided over a framework to fully reopen the strategically important Strait of Hormuz shipping route.
Meanwhile, bond markets remained under pressure after US Treasury yields surged overnight ahead of closely watched US employment data due on Thursday.
Investors will also closely track comments from Federal Reserve Chair Kevin Warsh, who is scheduled to speak at a European Central Bank conference later in the day, for clues on the outlook for further monetary tightening.
Japan’s Nikkei rose 0.6% after rallying 37% in the previous quarter, supported by robust demand for technology stocks. Sentiment among large manufacturers climbed to an eight-year high, while factory activity recorded its strongest quarterly performance since 2014.
(With input from agencies)
