Yen Languishes at 40-Year Low as Intervention Doubts Grow Before BoJ Meeting

The Japanese yen is trading close to its weakest level against the US dollar in four decades, having fallen past 162 per dollar to lows not seen since 1986. The slide has persisted despite a record intervention effort: Japanese authorities deployed more than 11.7 trillion yen, roughly $73 billion, of foreign reserves in April and May to prop up the currency, only for the gains to be fully retraced. The core problem is arithmetic. Even after the Bank of Japan raised its benchmark rate to 1% in June, its highest since 1995, Japanese yields remain far below US levels, sustaining the carry trade in which investors borrow cheaply in yen to buy higher-yielding dollar assets. Expectations that the Federal Reserve may tighten further this year have widened the gap, while Japan's reliance on imported energy adds to dollar demand. Analysts at Franklin Templeton and T. Rowe Price argue that intervention can punish speculative excess and slow the fall but cannot repeal the underlying rate differential, and that coordinated action involving Washington would be far more effective than unilateral moves by Tokyo. Attention now turns to the Bank of Japan's next policy decision on 31 July, with further rate rises seen as the more durable route to stabilising the currency.