Japan's Ministry of Finance directed the Bank of Japan to intervene in the foreign exchange market on Thursday after the yen weakened to 156.8 per dollar — its lowest level since the interventions of 2024. Authorities sold an estimated $35 billion to support the yen, temporarily pushing it back below 155. Finance Minister Katsunobu Kato warned of further action if speculative selling continued.
The yen's weakness has been driven by the persistent interest rate differential between Japan and the United States, despite the BOJ's gradual shift toward policy normalisation. While the BOJ raised rates to 0.5% in January 2026, the gap with US rates remains wide, incentivising carry trades where investors borrow yen at low rates to invest in higher-yielding assets globally.
The yen's depreciation has had mixed effects on India. Japanese FDI into India, which has been growing in the automotive and electronics sectors, becomes relatively more expensive for Japanese companies as their yen-denominated purchasing power weakens. However, Indian IT firms with Japanese clients benefit from rupee revenues translating to higher yen earnings for their Japanese counterparts, potentially improving business development prospects.
