The Japanese yen weakened sharply in mid-November 2026, nearing 160 per dollar, while the country's 10-year bond yield climbed toward 2.9%. The dollar briefly surpassed JPY160 on November 12, marking the yen's lowest point since September, before settling near JPY159.97 the following day. Meanwhile, the yield on Japan's benchmark 10-year government bond rose about seven basis points to around 2.87%, widening the gap with the US 10-year yield, which traded near 5.13%.
Japan faces a difficult balancing act: a weaker yen inflates import costs, particularly for energy, amid the Iran war, while raising interest rates to defend the currency would increase the burden of the country's massive public debt, which stood at about 214% of GDP in 2024. Markets are testing whether Tokyo will defend the JPY160 level, which triggered joint US-Japan intervention in the summer. Finance Minister Satsuki Katayama acknowledged rapid currency moves but declined to comment on potential intervention, while Atsushi Mimura, vice finance minister for international affairs, warned against dismissing the summer's defensive actions.
The US Treasury secretly supported Japan's intervention in July, spending about JPY79bn to buy yen, its first such move since 1998. The joint effort temporarily stabilized the yen, but pressure has since returned as the Federal Reserve raised rates to 3.75%-4% in September, while the Bank of Japan lifted its policy rate to just 1.25%. Economists expect the BoJ to raise rates to 1.5% in December, but the gap between US and Japanese rates remains a key factor weakening the yen.
The weak yen is fueling inflation, with import prices up 24.5% year-over-year in September and consumer inflation climbing back above 2%. Japan has responded with fuel subsidies and tax cuts, but these measures are adding to the country's borrowing costs. The 10-year bond yield briefly hit 3% in September for the first time since 1996, raising concerns about refinancing costs for Japan's massive debt.