The yen fell to its weakest level in roughly 40 years on the New York foreign exchange market Monday.
According to the Nikkei (Nihon Keizai Shimbun), the yen dropped to 162.28 per dollar in the Tokyo foreign exchange market around 10:12 a.m. that morning.
The move extended a trend from the previous day in New York, when the yen fell to 161.98 per dollar, breaching the 161.96 yen low of July 2024 that had been regarded as a psychological resistance line. It marked the weakest level since December 1986, shortly after the Plaza Accord.
The Nikkei analyzed that "the yen has weakened because, amid a trend of rising prices and an employment recovery tied to instability in the Middle East, market expectations have strengthened that the U.S. Federal Reserve could raise interest rates within the year." It added, "Combined with the prospect that the pace of future rate hikes by the Bank of Japan remains uncertain, the possibility has been raised that the interest rate gap between the U.S. and Japan could widen further, which appears to have pushed the yen-dollar rate even higher."
In December 1986, the yen-dollar rate fluctuated between 158 and 163 per dollar, and after the Plaza Accord caused the rate to adjust sharply, a strong-yen trend continued. As a result, if the yen falls to its December 1986 level, there is no chart-based reference, leaving an "unknown state" in which it is impossible to tell how far it could fall. With the yen reaching such weak levels, caution is also spreading that the Japanese government and the Bank of Japan could intervene by buying the yen.
The Nikkei pointed out that structural factors in the Japanese economy are also fueling the weak yen. Japan, which is highly dependent on energy imports, sees demand for dollars to settle crude oil payments rise when international oil prices increase, increasing pressure to sell the yen. The fact that individual investors continue to expand their share of overseas stock investments using the new small-amount tax-exempt investment system (NISA) is also cited as one of the factors driving the yen weaker.
A weak yen has the positive effect of boosting the price competitiveness of exporters such as automakers. However, concerns are also growing that it could stimulate domestic inflation through rising import prices and dampen household consumption.
When the yen fell to 161.93 per dollar in the New York foreign exchange market on Nov. 22, Japanese Finance Minister Satsuki Katayama and U.S. Treasury Secretary Scott Bessent discussed foreign exchange market trends through online consultations.
After it became known that the U.S. and Japanese finance ministers had discussed exchange rates and other matters, some speculated that the Japanese government and the Bank of Japan may have conducted small-scale yen-buying intervention or a rate check. Bessent had earlier this year personally led a rate check that sharply pushed down the yen-dollar rate, which had risen to the 159 per dollar range, to stabilize the yen.
In response, Finance Minister Katayama said, "The discussion with Secretary Bessent on Nov. 22 about exchange rates and other matters was not urgent, and beyond financial market trends, we also talked about the Middle East situation and cooperation related to artificial intelligence (AI)." She added, "Regarding foreign exchange intervention, our position remains unshaken that we will take decisive action if necessary, in line with the joint Japan-U.S. finance ministers' statement announced last September, and the two countries' perceptions are very close."
