Yen Slides Past 162 per Dollar to 40-Year Low as 250-Basis-Point US-Japan Gap Fuels Carry Trade
Updated
Updated · South China Morning Post · Jul 9
Yen Slides Past 162 per Dollar to 40-Year Low as 250-Basis-Point US-Japan Gap Fuels Carry Trade
3 articles · Updated · South China Morning Post · Jul 9
Summary
The yen fell beyond 162 per dollar, its weakest level since 1986, sharpening focus on the scale and durability of yen-funded carry trades.
A roughly 250-basis-point two-year swap spread between the US and Japan is keeping the trade attractive, encouraging investors to borrow cheaply in yen and buy higher-yielding overseas assets.
Hawkish Federal Reserve expectations and the Bank of Japan’s gradual tightening are sustaining that gap, with analysts expecting US inflation to stay elevated through most of the third quarter.
Analysts say those conditions are driving structural capital outflows from Japan for now, but the bigger risk is what happens to global flows if the rate differential starts to narrow.
As import costs cripple households, why won't the Bank of Japan risk a major rate hike to defend the yen?
With bearish bets at a peak, could a 'shock' intervention trigger a catastrophic unwind of the yen carry trade?
The 2026 Yen Crisis: Why Japan’s Currency Hit 160 and What It Means for Asia and the World
Overview
The Japanese yen’s historic decline has been driven by a mix of monetary policy divergence, the widespread use of the yen carry trade, and failed government interventions. Investors borrow yen at low interest rates and invest in higher-yielding assets abroad, increasing the supply of yen and weakening its value. Despite Japan spending billions to defend the currency, these efforts failed, leading markets to believe intervention limits had been reached. This loss of confidence encouraged more speculative selling, pushing the yen even lower and creating challenges for Japan’s economy and its trading partners.