Yen Reaches Six-Week High as Dollar Weakens Amid Persistent Monetary Policy Divergence

The Japanese yen has made significant gains in recent weeks, reaching a six-week high as the dollar weakens to 159.36. This modest recovery is still far from stabilizing the yen, which remains pressured near 40-year lows due to divergent monetary policy paths between the U.S. Federal Reserve and the Bank of Japan.

The persistent weakness of the yen has been driven by a widening interest rate differential between the two economies. The Federal Reserve held its key interest rate steady at 3.5% to 3.75%, while the Bank of Japan raised rates to 1.0% in June 2026, making the yen an attractive funding currency for carry trades.

Japan's Ministry of Finance and the Bank of Japan have deployed unprecedented intervention efforts to defend the currency, spending a record ¥11.73 trillion (approximately $73.35 billion) on foreign exchange intervention in April and May 2026 alone. However, these efforts have been overwhelmed by market forces, with the yen continuing to weaken.