The cheap yen is a bargain for tourists. For everyone else in Japan, it is a slow squeeze. A currency that buys less every month has already flipped the country’s trade ledgers.
In 1986, Japan ran a surplus of more than 13 trillion yen. It was the world’s largest.
By 2025, that number had swung to a deficit of nearly 3 trillion yen. The country now pays more for energy, food, and raw materials than it earns from selling cars and electronics abroad. That arithmetic hits households directly.
The yen hit the 162 range against the dollar this week. That is a forty-year low.
The last time it traded this weak, Halley’s Comet was swinging through the inner solar system and Fujifilm had just sold the first disposable camera with a built-in lens. Japan was climbing the bubble economy then, and the yen was actually strengthening. Now the currency is in freefall.
The cause is straightforward: the interest rate gap between Japan and the United States. Dollar-denominated assets pay more. Investors chase them.
The yen sells off. But the slide is not just about central bank policy.
Masashi Hashimoto of the Institute for International Monetary Affairs points to a structural driver: Japan’s declining international competitiveness. The export machine that once made the country the envy of the world no longer runs the same way. Production has moved offshore.
Entire industries have lost their edge. A weaker yen used to be a boost for exporters.
Now it is a sign that the economy has changed. The consequences are everywhere. For Japanese companies that import oil, gas, or wheat, every yen drop raises costs.
Those costs get passed on. For savers, the yen’s fall erodes purchasing power abroad and at home. For the government, a weak currency makes the national debt — already the largest in the developed world — harder to service, since much of it is held domestically but the interest payments are tied to yields that rise with inflation expectations.
There is a bright spot, and it is visible in the tourist districts. Foreign visitors see Japan as “Cheap Japan.” Hotels, meals, and shopping are bargains when priced in dollars or euros.
The country is celebrating a gold medal won by figure skating pair Riku Miura and Ryuichi Kihara — known as RikuRyu — and excitement over the soccer World Cup is building. But those celebrations sit uneasily next to a trade deficit and a currency that keeps falling. What to watch next is the Bank of Japan.
The central bank has kept interest rates near zero while the Federal Reserve has pushed them above five percent. That gap is the engine of the yen’s decline.
If the BOJ moves, the calculus changes. If it does not, the slide continues. Analysts are watching the pace of the fall.
A slow decline is manageable. A fast one is not. The last time the yen was at these levels, Japan was the world’s largest creditor nation.
Now it is a net importer. That is a different country.
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