"This persistent depreciation primarily stems from the massive interest rate differential between the United States and Japan. While the U.S. Federal Reserve (Fed) maintains policy rates at their highest level in years, the Bank of Japan (BOJ) has made little progress toward policy normalization. In this context, the yen continues to serve as a funding currency for global "carry trades," where investors borrow JPY at low cost to invest in higher-yielding USD assets."
"From an economic perspective, Japan continues to post a large current account surplus - around ¥29-30 trillion in 2024 (Reuters) - driven mainly by overseas investment income rather than trade in goods. Thus, while Japan faces no balance-of-payments crisis, its economy remains under pressure from sluggish growth. GDP expanded only about 0.6% in Q2 2025, a notable slowdown from the previous quarter, as weak household consumption and soft Chinese demand weighed on exports."
USD/JPY trades near 151, approaching a 52-week high near 159, reflecting sustained yen weakness. The depreciation mainly reflects a substantial interest rate gap as the Fed keeps rates high while the BOJ has not normalized policy. The yen functions as a funding currency for carry trades, prompting capital flows into dollar assets when U.S. Treasury yields rise or risk sentiment improves. Japan posts a large current account surplus (around ¥29-30 trillion in 2024) largely driven by overseas investment income, but growth is sluggish with Q2 2025 GDP up about 0.6% and core inflation near 2.7%.
Read at London Business News | Londonlovesbusiness.com
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