Japanese Yen Sinking

The Japanese yen is collapsing. It hit its lowest value against the US dollar since 1986, recently touching 160.86. By November 24, 2025, USD/JPY reached 156.54, up 2.82% in just one month. Forecasts predict it could sink to 161.14 by year-end. This isn't a blip. It's a 34-year low, and the bleeding won't stop.

The yen's 34-year collapse isn't temporary—it's a freefall that shows no signs of stopping.

The problem is straightforward. The Bank of Japan maintains ultra-low interest rates while the US has raised rates aggressively. That yield gap between US Treasuries and Japanese bonds keeps widening, incentivizing capital to flee Japan. Why would investors park money in yen when they can get better returns overseas? They won't. And they don't.

Japan's Ministry of Finance intervened twice in late April 2025, selling dollars to prop up the yen. Didn't work. Official warnings about possible intervention haven't reversed the momentum either. Market participants doubt these measures will do anything meaningful. Authorities care more about rapid, disorderly drops than gradual declines, but the yen keeps sliding anyway. Central banks intervene in foreign exchange markets to stabilize currency values and prevent excessive volatility, but such actions face limitations when underlying economic fundamentals work against them.

A short-term rate increase is anticipated—15 basis points, which is laughably insufficient to offset global monetary divergence. The BOJ prioritizes sustainable inflation over direct FX intervention. Limited rate hikes are projected, not nearly enough to make Japanese borrowing costs competitive globally. Rate hikes are looming, sure, but they're too little, too late. Interest rate decisions by central banks directly impact currency strength in the forex market, yet Japan's modest policy adjustments pale against the aggressive tightening seen elsewhere.

Japan's economic fundamentals aren't helping. The country experienced a brief recession in early 2024. Economic contraction is expected to persist. The trade balance remains negative. Japan's recovery lags other G7 economies—it hasn't even regained pre-pandemic economic size. Structural issues like demographics and productivity continue hampering growth.

Meanwhile, the US economy performs strongly. The Federal Reserve delays rate cuts, keeping the dollar robust. Labor market strength supports high interest rates and increased dollar demand. Global investors favor dollar-denominated assets for higher returns, accelerating yen depreciation. Like the distinction between onshore and offshore yuan markets where CNY trades in mainland China while CNH operates internationally, currency market segmentation can create pricing differences that reflect varying economic conditions and capital controls.

The yen is the third-most traded currency and a major reserve currency. That status hasn't insulated it from current dynamics. Widespread concern fills financial markets. The yen remains unattractive for parking funds. Sustained outflows continue. The currency is sinking, rate hikes or not.