Historic Yen Weakness: Policy and Expectations in a Dangerous Dance
- Japanese government continues fiscal expansion and BOJ maintains dovish monetary policy.
- Market's 'rational expectation' of yen depreciation is becoming reality.
- The intrinsic value of the yen as a currency is gradually eroding.
- Economic advisors to Sanae Takagi misjudged the policy effects.
- Yen depreciation has already reached historical lows.
The yen traded at 158.21 to the dollar on August 10 and averaged 158.24 over the first half of 2026, 6.5% weaker than the 148.54 average a year earlier. Against the euro it lost 13.8% in a year.
The Toyo Keizai piece argues this is not ordinary volatility but a priced-in expectation: markets now assume fiscal expansion continues and the Bank of Japan stays on the dovish side, so a persistently weak currency is treated as policy direction rather than accident. The article also unpacks what it sees as misreadings in the economic thinking around the Takaichi government. Details are best read in the original.
Public data fits the structural reading. The first-half current-account surplus was the largest since 1985 at 17.43 trillion yen, yet 20.49 trillion of primary income largely stayed offshore and portfolio investment saw 18.75 trillion of net outflows. Earnings do not become yen demand.
The old rule — yen strengthens in a crisis — stopped working after 2022, when the yen became a funding currency for carry trades. Anyone waiting for 120 is waiting for a world with global zero rates and a trade-driven Japanese surplus. Neither exists now.
Watch the September BOJ meeting, the minutes on September 28, and the tone of Ministry of Finance currency statements.
