Yen Weakness: A Global Market Concern

The yen has been experiencing a significant decline for years, driven by Japan's near-zero interest rates. This has turned the Japanese currency into one of the cheapest sources of funding globally.

In late July, both the U.S. and Japan intervened in the foreign exchange market to strengthen the yen, but it is now losing ground once again.

The yen traded at around 163 per dollar on July 29 before strengthening about 5% to touch 155 following the intervention on July 31. However, by August 18, it had weakened 2.5% to around 159 per dollar.

According to David Adams, head of G10 FX Strategy at Morgan Stanley Research, the key drivers of the currency's performance haven't shifted, and strengthening the yen requires lower U.S. interest rates and/or faster tightening by the Bank of Japan.