The Japanese yen has lost more than 37% of its value against the US dollar over the past five years, sliding to its lowest level since 1986 last month despite Japan spending an estimated $320 billion in reserves since 2022 trying to slow the decline. The currency touched 162.58 per dollar, a genuine 40-year low that has kept traders on alert for further intervention from Tokyo.
The scale of Japan's defense has escalated sharply this year. Between April and May alone, the Bank of Japan deployed roughly $72.8 billion in foreign reserves to prop up the currency. In early August, Japan and the United States confirmed a rare, coordinated yen-buying operation, with the BOJ reportedly spending around ¥5.33 trillion in a single day of intervention — after an earlier operation worth ¥8.45 trillion, believed to be a record for a single day.
Interventions are buying time, not a turnaround
None of it has reversed the underlying trend. Each round of intervention has produced only a temporary bounce before the yen resumed weakening, a pattern traders have seen repeatedly since the currency first broke into 40-year-low territory last year. The persistence of the slide points to forces larger than any single intervention can offset: elevated energy import costs, growing concern over Japan's fiscal position, and an interest rate gap with the US Federal Reserve that continues to favor dollar-denominated assets over yen.
The carry trade keeps the pressure on
That rate differential is central to why the yen keeps sliding even as Tokyo intervenes. Investors have long borrowed cheaply in yen to fund purchases of higher-yielding dollar assets — the so-called yen carry trade — and as long as the Fed holds rates well above Japan's, that trade keeps generating steady sell pressure on the currency regardless of how much Tokyo spends defending it. Japanese institutional investors are already feeling the knock-on effects, with the country's top insurers sitting on billions in unrealized bond losses tied to the currency's slide.
Related: Japan's Top Insurers Sit on $91B in Bond Losses as Yen Slides
Why it matters beyond Japan
A yen stuck at 40-year lows has ripple effects well past Tokyo. A weaker yen makes Japanese exports more competitive but squeezes import-dependent households and businesses, and it keeps alive the risk that a sudden, disorderly unwind of carry trades could hit global risk assets — a scenario markets have watched warily since a yen-driven equity selloff rattled global markets in 2024. With Japan now resorting to record-sized, coordinated interventions just to slow the bleeding, the currency's trajectory remains one of the more closely watched macro risks heading into the fall.
