Halting the Yen’s Long Decline: Three Conditions for a Rebound
Autumn 2026 has shown the first signs in more than four years of a weakening of the yen’s value. Massive intervention in currency markets by Japan and the United States and September statements from US officials appear to be pushing the yen higher once again; an economist specializing in currency issues looks at prospects for the exchange rate going forward.
The yen's long decline has been halted by three key conditions. First, Japan's interest rates have gradually begun to rise, closing the widening gap between Japanese and US rates. The Bank of Japan initially only began normalizing its monetary policy in March 2024, but as US rates fell, the gap reopened. Second, Japan's government has shown less resistance to the central bank's rate hikes compared to the United States.
Prime Minister Sanae's expansionary fiscal policies and commitments to lower taxes have contributed to the yen's decline. Finally, coordinated interventions by Japan's Ministry of Finance have temporarily halted the yen's decline. While these interventions may not reverse the overall trend, they demonstrate the government's willingness to take decisive action to support the currency.
The outcome will depend on the direction of resource prices, further monetary policy moves by the Bank of Japan, and the government's fiscal discipline.
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