The Japanese yen has been labeled the "world's weakest currency," fueling growing anxiety in foreign exchange markets, after analysis emerged showing its real purchasing power has fallen below even the Turkish lira, long regarded as a chronically ultra-weak currency.
The Nikkei reported on the 26th that an analysis by Robin Brooks, senior fellow at the Brookings Institution in the United States, has become a major topic in the foreign exchange market. On the 24th, Brooks argued via X (formerly Twitter) that "the Japanese yen has now become the world's weakest currency, surpassing the Turkish lira."
He described it as "a long-anticipated outcome," noting that "the direct cause is that Japan's enormous public debt has made it virtually impossible to raise interest rates to stabilize the currency."
Why Has the Yen Become a "Weak Currency"?
The indicator Brooks cited as evidence is the Real Effective Exchange Rate (REER). Rather than simply looking at the exchange rate against the dollar, REER calculates a currency's actual purchasing power and international competitiveness by reflecting trade weights with major partners and price levels.
In simple terms, it shows "how much you can actually buy with that country's money." It is regarded as a better gauge of a national currency's underlying strength than the simple exchange rate.
The Nikkei reported that while the yen's real effective exchange rate has continued to decline recently, the Turkish lira has shown a rebound trend. Since the market has long viewed the lira as a representative "ultra-weak currency," some have reacted with shock that the yen is now rated even lower.
The Turkish lira was indeed considered the world's weakest currency in the 1990s and early 2000s. Notably, in 2021, when President Recep Tayyip Erdogan pushed through interest rate cuts despite high inflation, the lira's value plunged more than 40% in a single year.
"Money Printing Continues"… Structural Yen Weakness Becomes Entrenched
In the past, the yen was viewed as a representative safe-haven asset that strengthened during global financial crises and geopolitical turmoil. Recently, however, the yen has repeatedly failed to gain strength even in crisis situations.
Some market analysts go so far as to say that "the yen's status as a safe-haven asset itself is being shaken," citing a combination of Japan's structural low growth, massive national debt, and prolonged easing policy.
Behind this assessment lies Japan's distinctive ultra-low interest rate structure. While the U.S. Federal Reserve has maintained high interest rates for a prolonged period, the Bank of Japan (BOJ) finds it difficult to raise rates quickly. The Japanese government's debt is simply too large. Raising rates could sharply increase the interest burden on government bonds and intensify fiscal pressure.
Rising international oil prices are also cited as a factor accelerating yen weakness. Japan is a country highly dependent on energy imports. When oil prices rise, import costs increase and the trade balance deteriorates, making it easy for the yen's value to fall.
The Nikkei analyzed that, considering instability in the Middle East, rising energy prices, and fiscal burdens from supplementary budgets, it will not be easy for the trend to reverse toward a stronger yen.
SMBC Nikko Securities also projected that Japan's trade balance, which has recently swung back to a surplus, could expand again into an annual deficit of around 5 trillion yen (about 47 trillion won).
Japanese Government Spends Over 90 Trillion Won Defending Currency, But…
As the yen's value continued to plunge, the Japanese government and the Bank of Japan have recently launched a large-scale currency defense. According to AFP and Japanese media, Japanese authorities are estimated to have intervened in the market by injecting approximately 10 trillion yen (about 93 trillion won) since late April to buy yen and sell dollars.
At the time, the yen-dollar rate had soared to around 160 yen per dollar, hitting its highest level in about two years. Subsequently, observations spread that the Japanese government had carried out consecutive interventions, taking advantage of low trading volumes during the Golden Week holidays.
Some in the market interpret that Japanese authorities' de facto "line of defense" has moved down from the previous 160 yen per dollar level to around 157 yen.
However, many in the foreign exchange market believe that short-term intervention alone cannot reverse the yen's weakening trend. The interest rate gap between the U.S. and Japan remains wide, and Japan's economic structure itself is locked into a low-rate, low-growth regime.
