Why is the yen so weak and what can Japan do about it?

<div>AFP looks at the causes and consequences and how Japan might halt the slide, which mirrors drops in other Asian currencies in the wake of the Middle East war.</div><div><br></div><div>Part of the reason is the gap between Japanese interest rates and those of other central banks, especially the US Federal Reserve. While the Bank of Japan (BoJ) began hiking rates above zero in 2024, and raised them to a 31-year high on June 16, they remain low compared to other major economies.</div>

<div>This gap means that investors borrow yen at cheap rates and invest in other assets outside Japan with better returns. This results in capital outflows and pressure on the yen.</div><div><br></div><div>The BoJ is expected to hike rates further this year, but expectations are growing that the Fed will also tighten, meaning that the differential will remain.</div><div><br></div><div>“The prospect of higher US interest rates has widened the expected policy gap between the United States and many of its major trading partners, increasing demand for dollar-denominated assets,” said IG’s Axel Rudolph.</div>