Japan's Debt Burden Fuels Latest Yen Crisis

Japan's latest yen crisis has led to a massive intervention by the Bank of Japan and the US. The yen began 2026 around 156 yen to the dollar but fell to 163.99 yen in July, its weakest level in roughly four decades.

The Bank of Japan may have spent an estimated $58.97 billion buying yen, according to data from the Bank of Japan. The intervention initially strengthened the yen by around 5.0 per cent, but those gains have since substantially faded, with the currency back around 159 yen.

While interest-rate differentials and carry trades are contributing factors to the crisis, they do not fully explain why it feels different this time. Japan's general-government gross debt is projected at about 200 per cent of GDP in 2026, among the highest levels in the advanced world.

The yen's weakness has become a political problem as inflation has already become a concern, with recent Japanese wholesale prices rising 7.2 per cent year-on-year in July. A weak yen now feeds directly into household purchasing power, making imports more expensive.