Yen's Plunge Continues Amidst Attractive US Interest Rates

The Japanese yen has been steadily weakening over the last 15 years, plummeting from around 76 yen per dollar to a recent low of nearly 164. This decline is largely due to Japan's monetary policy gap with the US. The Bank of Japan kept interest rates extremely low for years to combat deflation and stimulate the economy.

With inflation finally returning at a rate of 1.7% year-on-year in June, the Bank of Japan cannot raise interest rates aggressively because of Japan's enormous government debt. The carry trade also puts pressure on the yen, with investors borrowing yen at low rates to invest in higher-yielding US bonds.

Japan has attempted currency intervention, but it hasn't been successful so far. In April, the Bank of Japan spent ¥11.7 trillion ($74 billion) to support the currency, and while the yen strengthened initially, the effect was short-lived.