Yen weakens, hitting 158 per dollar: Accelerating depreciation and its background

On the morning of December 20, 2024, the Japanese yen traded around 158 yen to the dollar in the Tokyo foreign exchange market, marking a 29-sen decline against the dollar. The yen also weakened against the euro, trading in the late 169 yen range. Foreign exchange brokers attribute this weakening yen trend to buying pressure for the dollar, which offers relatively high interest rates and is advantageous for investment, and to increased dollar demand from domestic import companies for settlement purposes.

However, this figure of 158 yen holds more significance than just the exchange rate for that day. Looking at the long-term trend of exchange rates since January 2021, it becomes clear that the yen has been steadily weakening. Focusing on the monthly average exchange rate data for 2023, it started at 130.68 yen in January and fell to 150.10 yen in November. The highest value for the year was 151.77 yen in November, and the lowest was 127.92 yen in January, a difference of approximately 24 yen.

The Yen's Weakening Trajectory as Shown in the Graph

Looking at the graph showing the trend since 2021, it's clear that the yen weakened throughout 2023, and this trend continued into 2024. A major factor is considered to be the Bank of Japan's continued large-scale monetary easing policy, while the US Federal Reserve (FRB) has shifted to monetary tightening. The widening interest rate differential between Japan and the US is accelerating yen selling and dollar buying.

Recent Movements: The 158 Yen Barrier

Furthermore, looking at the recent data, while the yen temporarily recovered to the low 150 yen range in early to mid-December 2024, it shifted back to a downward trend, recording a closing price of 154.80 yen on December 18. Then, on the 20th, it finally broke through the 158 yen level. This suggests that the market is beginning to anticipate the next milestone in the 160 yen range.

How Far Will the Yen Weaken?

How much further will the yen weaken? As long as the difference in monetary policy direction between Japan and the US continues, the yen is likely to remain weak. However, a rapid weakening of the yen could significantly impact the Japanese economy. Concerns include increased inflationary pressure from rising import prices and deterioration of corporate earnings.

The Bank of Japan needs to carefully steer its monetary policy to achieve its price stability target. The government is also required to take measures to mitigate the negative effects of the weak yen. Exchange market trends are an important indicator for forecasting the future of the Japanese economy and should continue to be closely monitored.

Structural Challenges Underlying the Yen's Weakness

This weakening yen trend may reflect not just short-term market fluctuations, but also structural challenges in the Japanese economy. For example, various factors are thought to be affecting the value of the yen, including labor shortages due to the declining birthrate and aging population, a decline in international competitiveness due to a lag in innovation, and prolonged deflation leading to economic stagnation.

Addressing these challenges requires a comprehensive approach, including not only monetary policy but also the promotion of growth strategies and structural reforms. While the weak yen highlights the challenges facing the Japanese economy, it can also serve as an impetus for reform. The figure of 158 yen should perhaps be taken as a serious warning regarding the current state and future of the Japanese economy.