Japanese Yen Hits 40-Year Low Amid US Rate Hikes

The Japanese yen fell to a 40-year low, reaching approximately 162.77 per US dollar by July 1, 2026. The currency's historic slide, the worst since 1986, is driven by a widening interest rate gap between Japan and the United States, fueled by a hawkish shift from the US Federal Reserve and a resilient US labor market. The decline was further exacerbated by inflationary pressures and energy costs stemming from conflict in Iran.

Satsuki Katayama, Japan's Finance Minister, stated that authorities stand ready to take bold and decisive action to halt speculative moves. This verbal intervention follows a period of intense activity where the Japanese government spent a record 11.73 trillion yen between April and May to defend the currency. Katayama has coordinated with US Treasury Secretary Scott Bessent to align foreign exchange policies and address excessive volatility.

To combat the decline, the Bank of Japan raised its benchmark interest rate to 1% on June 16, the highest since 1995. However, traders viewed the move as too passive to stem the fall. While the weak yen has pushed the Nikkei stock average to record highs and boosted tourism, it has significantly increased import costs for food and energy. In response, Prime Minister Sanae Takaichi's government has provided fuel and energy subsidies to consumers to mitigate inflation.