{"content_id":"zkbqqmr2kn","slug":"yen-weakness-2026-interest-rate-hikes-explained","locale":"en","schema_type":"Article","category":"knowledge_base","category_name":"Knowledge Base","title":"Why the Yen Stays Weak Despite 2026 Rate Hikes","summary":"The weak yen cannot be explained simply by whether Japan raises interest rates. The 2026 U.S.-Japan interest rate gap and overseas investment flows help explain the limits of currency intervention and the effects on households and businesses.","sponsorship_disclosure":null,"affiliate_disclosure":null,"commerce_disclosure":null,"author":{"name":"Injoys Editorial Team","url":"https://injoys.com/ko/about"},"key_points":["Based on the September 2026 decisions, the gap between U.S. and Japanese policy rates is 2.50 to 2.75 percentage points.","The yen carry trade seeks to profit from interest rate differences but can incur losses if the yen strengthens.","When income earned overseas is reinvested locally, a current account surplus does not immediately lead to yen buying.","The weak yen's impact on each business depends on the currency mix of its revenue and costs.","When buying yen with won, you need to check both the dollar-yen and won-dollar exchange rates."],"content_markdown":"A weak yen can persist even if Japan raises interest rates, as long as a rate gap with the United States remains. Market expectations for interest rates and the flow of overseas investment also matter. When buying yen with Korean won, you need to look at both the dollar-yen and won-dollar exchange rates.\n\nThe policy rate figures are based on announcements by the U.S. and Japanese central banks in September 2026.\n\n## Which exchange rate defines a weak yen?\n\nA weak yen means the yen has fallen in value against another currency. The dollar-yen exchange rate shows how many yen are needed to buy one dollar. When that number rises, the yen falls against the dollar.\n\nThe won-yen exchange rate is usually shown as the won needed to buy 100 yen. When that number falls, you can buy yen more cheaply with won. Because the two rates use different reference currencies, they may not move in the same direction.\n\n| Quotation | When the number rises | When the number falls |\n| --- | --- | --- |\n| Yen per dollar, yen/dollar | Yen weakens against the dollar | Yen strengthens against the dollar |\n| Won per 100 yen, won/100 yen | Yen strengthens against the won | Yen weakens against the won |\n\nReports of a long-term low in the summer of 2026 concerned the yen against the dollar. In an August 3 report, AP said the dollar-yen rate had briefly exceeded 164 yen in July. The same report described this as the dollar’s strongest level in about 40 years. It should not be read as a historic low in the won-yen exchange rate. [AP’s August 3, 2026, exchange rate report](https://apnews.com/article/7316599afed35629a27ae23a35f569fd)\n\n## Why is the yen weak even after an interest rate increase?\n\nExchange rates respond to relative investment conditions, not just the size of Japan’s rate increase. If U.S. rates remain higher, dollar assets retain their interest-rate appeal. Markets also price in expected future rate differences ahead of time.\n\nThe Bank of Japan (日本銀行) decided to raise its policy rate on September 18, 2026. Its target for the uncollateralized overnight call rate is around 1.25% per year. The new guideline takes effect on September 24. [Bank of Japan announcement of a change in its money market operations guideline](https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf)\n\n\u003e The Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent.\n\u003e\n\u003e Bank of Japan, Change in the Guideline for Money Market Operations, September 18, 2026\n\nThis is a target for guiding very short-term interest rates between financial institutions. It does not mean individuals can borrow yen at the same rate. Actual lending rates reflect creditworthiness and the financial institution’s terms.\n\n| Comparison | September 2026 decision | Interpretation |\n| --- | --- | --- |\n| Japanese policy rate | Around 1.25% per year | Bank of Japan’s short-term rate target |\n| U.S. policy rate | 3.75% to 4.00% per year | Target range for the federal funds rate |\n| U.S.-Japan policy rate gap | 2.50 to 2.75 percentage points | U.S. target range minus Japan’s target |\n\nThe U.S. Federal Reserve also decided to raise its policy rate on September 16. Japan’s increase alone therefore does not show that the rate gap between the two countries narrowed substantially. The gap above is a simple comparison of policy rates. It is not the return on an investment in U.S. Treasury securities. [Federal Reserve’s September 2026 FOMC statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm)\n\nAn expected rate increase may be reflected in exchange rates before it is announced. If subsequent increases come more slowly than expected, demand to buy yen may weaken. The yen’s weakness after a rate increase alone does not establish that the policy had no effect.\n\n## How does the yen carry trade work?\n\nA yen carry trade involves raising funds in low-interest-rate yen. Investors use the borrowed money to buy assets in other currencies that they expect to yield higher returns. Selling yen in this process can put downward pressure on the currency.\n\nBut the interest rate difference is not a guaranteed return. If the yen strengthens, the cost of repaying the borrowed yen rises. A fall in the price of the assets held can also cause losses. BIS analyzed how the unwinding of leveraged investments amplified market volatility in August 2024. [BIS analysis of carry trade unwinding](https://www.bis.org/publ/bisbull90.pdf)\n\n- Funding rate: The interest charged on an actual yen loan.\n- Investment return: Interest earned on the investment assets and gains or losses from price changes.\n- Foreign exchange gain or loss: The gain or loss when converting funds back into yen.\n- Transaction costs: Currency conversion costs, fees, and other expenses.\n\nCurrency hedging is a transaction that reduces exchange rate risk. But hedging costs also reflect the interest rate difference between the two countries. It is therefore difficult to eliminate exchange rate risk while still capturing the full rate difference. [BIS explanation of currency hedging and interest rate differences](https://www.bis.org/publications/qr-201609/covered-interest-parity-lost-understanding-cross-currency-basis)\n\n## Why is the yen weak despite a current account surplus?\n\nNot all of a current account surplus leads to immediate yen purchases. The current account includes interest and dividends from overseas investments. It also includes some profits that overseas subsidiaries retain locally.\n\nThe Bank of Japan’s balance of payments FAQ explains how reinvested earnings are treated. Retained earnings at an overseas subsidiary are recorded as income attributable to its parent company. At the same time, they are recorded as reinvestment in the financial account. They are recorded even if no money is sent to Japan or converted into yen. [Bank of Japan balance of payments statistics FAQ](https://www.boj.or.jp/en/statistics/outline/exp/faqbpsm6.htm)\n\nSimply subtracting overseas investment from the current account surplus can therefore be inaccurate. The same reinvestment transaction may have corresponding entries in both statistics. To compare them, first align their periods and coverage.\n\n| Distinction to check | Easy to confuse | Correct interpretation |\n| --- | --- | --- |\n| Flows and stocks | Annual overseas investment and overseas assets at year-end | Distinguish transactions over a period from holdings at a point in time |\n| Gross and net figures | Overseas investment purchases and net investment | Check whether sales, recoveries, and investment in the opposite direction are reflected |\n| Income and currency conversion | Profits earned overseas and yen purchases | Distinguish local reinvestment from actual currency conversion |\n| Statistical period | Annual and half-year figures | Compare figures for the same period |\n\nNISA is a Japanese account system that provides tax benefits on investment returns. Which assets the money in those accounts is invested in is a separate question. The entire amount invested through NISA cannot be treated as overseas investment or yen sales. [Japan Financial Services Agency’s explanation of NISA](https://www.fsa.go.jp/policy/nisa2/know/index.html)\n\n## Why is foreign exchange intervention unlikely to change the trend?\n\nIntervention to buy yen directly increases demand for the currency. It cannot, however, eliminate the interest rate gap between the two countries or investors’ long-term outlook. Incentives to sell yen may remain after the intervention.\n\nOn August 3, 2026, AP reported confirmation of intervention by both the U.S. and Japan. The dollar-yen rate fell to around 155.20 yen during trading that day. But it is difficult to isolate the effect of intervention from the entire exchange rate change over a given period. Economic data and interest rate expectations can change at the same time. [AP report on U.S.-Japan foreign exchange intervention](https://apnews.com/article/7316599afed35629a27ae23a35f569fd)\n\nJapan’s Ministry of Finance (財務省) publishes its own intervention amounts separately. The total for July 30 through August 26, 2026, was 15.3993 trillion yen. That is the Japanese amount for the entire reporting period. It should not be read as the total for one day of joint U.S.-Japan intervention. [Ministry of Finance announcement of August 28, 2026](https://www.mof.go.jp/english/policy/international_policy/reference/feio/monthly/20260828e.html)\n\nWhen assessing the effect of intervention, make these distinctions:\n\n- Short-term effect: Check whether it eased sharp exchange rate movements.\n- Lasting effect: Check whether interest rate expectations and capital flows changed afterward.\n- Scope of the figures: Distinguish estimates from official amounts.\n- Participants: Look at the Japanese and U.S. amounts separately.\n\n## The relationship between fiscal expansion and rising government bond yields\n\nA rise in government bond yields does not always mean a stronger yen. Its effect on the currency depends on why yields rose. Investors may also demand higher interest rates because of concerns about public finances.\n\n| Reason government bond yields rise | Possible market signal | Possible effect on the yen |\n| --- | --- | --- |\n| Improved growth outlook | Higher expected investment returns and interest rates | May support demand for yen |\n| Inflation concerns | Concern about declining purchasing power | Depends on the central bank’s response |\n| Increased bond supply | Need to absorb more bonds | Depends on demand and the policy response |\n| Weaker confidence in public finances | Demand for extra compensation for risk | May accompany a weaker yen |\n\nSanae Takaichi’s (高市早苗) government pursued a reduction in the consumption tax on food. A related bill was also mentioned at a September 17, 2026, press conference. The same press conference explained that funding for the entire measure would be considered alongside budget reforms. There is insufficient basis to conclude that the policy would be funded entirely through government bonds. [Japanese Prime Minister’s Office press conference of September 17, 2026](https://www.kantei.go.jp/jp/105/statement/2026/0917kaiken.html)\n\nGovernment targets for encouraging investment must also be distinguished from actual government spending. If private investment is included, the entire amount is not a fiscal burden. The confirmed budget and bond issuance plan are needed to determine how much funding the government will actually raise.\n\nThere are also limits to calculating costs by multiplying existing government debt by the increase in interest rates. Interest on fixed-rate government bonds does not change immediately when market rates rise. The burden appears through new issuance and refinancing debt as it matures. Refinancing means replacing maturing debt with new debt.\n\n## What else does the Bank of Japan consider?\n\nThe Bank of Japan considers economic activity and prices as well as exchange rates. Higher interest rates tend to restrain borrowing and spending. Meanwhile, higher import prices caused by a weak yen reduce households’ purchasing power.\n\nThe release version of GDP figures from Japan’s Cabinet Office (内閣府) also matters. The first preliminary estimate of real growth in the second quarter of 2026 was an annualized 1.1%. The second preliminary estimate, released on September 8, revised it to an annualized 1.4%. Growth from the previous quarter was 0.4%. [Cabinet Office second preliminary GDP estimate for the second quarter of 2026](https://www.esri.cao.go.jp/en/sna/data/sokuhou/files/2026/qe262_2/pdf/gaiyou2622_e.pdf)\n\nAn annualized rate converts one quarter’s pace of growth into the rate that would result if it continued for a year. It does not mean the economy grew by that much during the quarter. Assessing the economy also requires details such as consumption and capital investment.\n\nIn its September announcement, the Bank of Japan assessed the economy as recovering moderately despite some weakness. It also described the effects of a weak yen and high crude oil prices on inflation. It would therefore be inappropriate to conclude that it cannot raise rates further. Actual policy will depend on subsequent data and forecasts. [Bank of Japan’s September 2026 assessment of economic activity and prices](https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf)\n\n## By circumstance: Benefits and burdens of a weak yen\n\nThe effect of a weak yen depends on the currencies in which revenue and costs are calculated. Exporters can face higher costs if they use many imported raw materials. The share of production overseas and whether currency risks are hedged also affect the outcome.\n\n| Situation | Potential benefit | Burdens to check as well |\n| --- | --- | --- |\n| Company with substantial foreign-currency revenue | Higher yen value of foreign-currency profits | Overseas costs, imported raw materials, currency hedging |\n| Japan’s tourism industry | Lower cost of local purchases for foreign visitors | Rising food ingredient, energy, and labor costs |\n| Import-focused company | Limited direct exchange rate benefit | Higher cost of foreign-currency payments |\n| Japanese household | Potential increase in the yen value of foreign-currency assets held | Higher food and energy prices |\n| Paying for a trip to Japan in won | Lower currency conversion cost if the won-yen rate falls | Local prices, airfares, currency conversion fees |\n\nToyota’s earnings forecast cannot be explained by the exchange rate alone. In August 2026, the company raised its annual operating profit forecast by 400 billion yen. Its forecast for the fiscal year ending March 2027 is 3.4 trillion yen. The company’s explanation also includes alternative logistics routes for the Middle East and business improvements. [Toyota’s FY2027 first-quarter results explanation](https://toyotatimes.jp/en/toyota_news/financial_results_2027/001.html?padid=ag478_from_newsroom)\n\nIt would therefore be inaccurate to attribute the entire forecast increase to the weak yen. Assessing exchange rate sensitivity requires a separate analysis from the company. An improved corporate profit forecast also does not guarantee a rise in the share price.\n\n## Household burdens as seen through real wages\n\nReal wages show the amount of goods and services that wages can buy. Even if nominal wages rise, real wages fall when prices rise faster. A weak yen can contribute to this burden through import prices.\n\nThe Ministry of Health, Labour and Welfare’s (厚生労働省) final statistics for 2025 are as follows. They cover workplaces with at least 5 employees. The real wage figures differ depending on the consumer price index used. [Ministry of Health, Labour and Welfare’s final 2025 Monthly Labour Survey results](https://www.mhlw.go.jp/toukei/itiran/roudou/monthly/r07/25cr/dl/pdf25cr.pdf)\n\n| Indicator | Change from the previous year in 2025 | Basis |\n| --- | --- | --- |\n| Nominal wages in 2025 | Increased 2.5% from the previous year | Total cash earnings |\n| Real wages | Decreased 1.3% | Overall price index excluding imputed rent for owner-occupied housing |\n| Reference figure for real wages | Decreased 0.8% | Overall consumer price index |\n\nImputed rent estimates the benefit of living in your own home as though it were rent. It is not money actually paid to a landlord. Whether this item is included makes a difference in the real wage calculation.\n\nThe decline in real wages cannot be attributed entirely to the weak yen. Global commodity prices and the size of wage increases also matter. Nor does improvement in a single quarter show whether earlier losses in purchasing power have been recovered.\n\n## Calculation example: The difference between 884 won and 950 won per 100 yen\n\nIf the exchange rate per 100 yen falls from 950 won to 884 won, you save 66 won. The two rates are comparison figures for the calculation. They are not presented as actual bank exchange rates on a particular date.\n\n| Comparison | Calculation | Result |\n| --- | --- | --- |\n| Difference in the cost of buying 100 yen | 950 won - 884 won | Decrease of 66 won |\n| Percentage decrease in won cost | 66 won ÷ 950 won × 100 | About 6.95% |\n| Percentage increase in yen purchasable with the same amount of won | 950 ÷ 884 - 1 | About 7.47% |\n\nThe percentage decrease in cost and the percentage increase in yen purchasable are different because they use different starting values. Currency conversion fees are not included in these calculations.\n\nTo compare travel costs, use the exchange rate that will actually apply. Cash conversion and card payments may have different costs. If local accommodation costs have risen, the exchange rate benefit may also shrink.\n\n## The effect of the won hidden in the won-yen exchange rate\n\nThe won-yen exchange rate is affected by movements in the won as well as the yen. The relationship can be calculated using the dollar as a common reference. This assumes rates from the same point in time and on the same pricing basis.\n\n**Won per 100 yen = Won per dollar ÷ Yen per dollar × 100**\n\n| With other conditions unchanged | Effect on won per 100 yen | Meaning for someone converting won |\n| --- | --- | --- |\n| Yen per dollar rises | Falls | Lower cost of buying yen |\n| Won per dollar rises | Rises | Higher cost of buying yen |\n| Both rates rise by the same percentage | Largely unchanged | Benefit of a weaker yen against the dollar is offset |\n\nA weaker yen against the dollar alone is therefore not enough to predict the cost of converting travel money. If the won weakens more, the cost of buying yen can rise. Banks’ actual exchange rates also reflect transaction costs.\n\n## Common mistakes in articles about the weak yen\n\nWhen interpreting a weak yen, distinguish what the numbers measure from claims about cause and effect. Policy rates and government bond yields are different indicators, even though both are interest rates. Confirmed changes should also be read separately from estimates of their causes.\n\n| Common interpretation | What to check |\n| --- | --- |\n| The policy rate gap equals the investment return | Actual funding rate, asset return, foreign exchange gains or losses, and costs |\n| Rising government bond yields always mean a stronger currency | Distinguish growth expectations from inflation and fiscal risks |\n| The entire current account surplus is cash entering the country | Overseas retained earnings and their treatment as reinvestment |\n| A monthly intervention amount is the amount of joint intervention on a particular day | Reporting period and amounts by participating country |\n| A higher profit forecast is entirely due to the exchange rate | The company’s explanation of sales volume, costs, logistics, and other factors |\n| Yen that are cheap compared with the past will rise in value | Distinguish the current price from future returns |\n\nIf you are preparing to convert currency, check in this order:\n\n1. Decide when you will need the yen and how much you need.\n2. Check the bank’s actual exchange rate per 100 yen.\n3. Compare the final amount of won you will spend, including fees.\n4. Keep money for travel separate from funds invested in the hope of exchange rate gains.","content_html":"\u003cp\u003eA weak yen can persist even if Japan raises interest rates, as long as a rate gap with the United States remains. Market expectations for interest rates and the flow of overseas investment also matter. When buying yen with Korean won, you need to look at both the dollar-yen and won-dollar exchange rates.\u003c/p\u003e\n\u003cp\u003eThe policy rate figures are based on announcements by the U.S. and Japanese central banks in September 2026.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#which-exchange-rate-defines-a-weak-yen\" class=\"anchor\" id=\"which-exchange-rate-defines-a-weak-yen\"\u003e\u003c/a\u003eWhich exchange rate defines a weak yen?\u003c/h2\u003e\n\u003cp\u003eA weak yen means the yen has fallen in value against another currency. The dollar-yen exchange rate shows how many yen are needed to buy one dollar. When that number rises, the yen falls against the dollar.\u003c/p\u003e\n\u003cp\u003eThe won-yen exchange rate is usually shown as the won needed to buy 100 yen. When that number falls, you can buy yen more cheaply with won. Because the two rates use different reference currencies, they may not move in the same direction.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eQuotation\u003c/th\u003e\n\u003cth\u003eWhen the number rises\u003c/th\u003e\n\u003cth\u003eWhen the number falls\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Quotation\"\u003eYen per dollar, yen/dollar\u003c/td\u003e\n\u003ctd data-label=\"When the number rises\"\u003eYen weakens against the dollar\u003c/td\u003e\n\u003ctd data-label=\"When the number falls\"\u003eYen strengthens against the dollar\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Quotation\"\u003eWon per 100 yen, won/100 yen\u003c/td\u003e\n\u003ctd data-label=\"When the number rises\"\u003eYen strengthens against the won\u003c/td\u003e\n\u003ctd data-label=\"When the number falls\"\u003eYen weakens against the won\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eReports of a long-term low in the summer of 2026 concerned the yen against the dollar. In an August 3 report, AP said the dollar-yen rate had briefly exceeded 164 yen in July. The same report described this as the dollar’s strongest level in about 40 years. It should not be read as a historic low in the won-yen exchange rate. \u003ca href=\"https://apnews.com/article/7316599afed35629a27ae23a35f569fd\"\u003eAP’s August 3, 2026, exchange rate report\u003c/a\u003e\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#why-is-the-yen-weak-even-after-an-interest-rate-increase\" class=\"anchor\" id=\"why-is-the-yen-weak-even-after-an-interest-rate-increase\"\u003e\u003c/a\u003eWhy is the yen weak even after an interest rate increase?\u003c/h2\u003e\n\u003cp\u003eExchange rates respond to relative investment conditions, not just the size of Japan’s rate increase. If U.S. rates remain higher, dollar assets retain their interest-rate appeal. Markets also price in expected future rate differences ahead of time.\u003c/p\u003e\n\u003cp\u003eThe Bank of Japan (日本銀行) decided to raise its policy rate on September 18, 2026. Its target for the uncollateralized overnight call rate is around 1.25% per year. The new guideline takes effect on September 24. \u003ca href=\"https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf\"\u003eBank of Japan announcement of a change in its money market operations guideline\u003c/a\u003e\u003c/p\u003e\n\u003cblockquote\u003e\n\u003cp\u003eThe Bank will encourage the uncollateralized overnight call rate to remain at around 1.25 percent.\u003c/p\u003e\n\u003cp\u003eBank of Japan, Change in the Guideline for Money Market Operations, September 18, 2026\u003c/p\u003e\n\u003c/blockquote\u003e\n\u003cp\u003eThis is a target for guiding very short-term interest rates between financial institutions. It does not mean individuals can borrow yen at the same rate. Actual lending rates reflect creditworthiness and the financial institution’s terms.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eComparison\u003c/th\u003e\n\u003cth\u003eSeptember 2026 decision\u003c/th\u003e\n\u003cth\u003eInterpretation\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003eJapanese policy rate\u003c/td\u003e\n\u003ctd data-label=\"September 2026 decision\"\u003eAround 1.25% per year\u003c/td\u003e\n\u003ctd data-label=\"Interpretation\"\u003eBank of Japan’s short-term rate target\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003eU.S. policy rate\u003c/td\u003e\n\u003ctd data-label=\"September 2026 decision\"\u003e3.75% to 4.00% per year\u003c/td\u003e\n\u003ctd data-label=\"Interpretation\"\u003eTarget range for the federal funds rate\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003eU.S.-Japan policy rate gap\u003c/td\u003e\n\u003ctd data-label=\"September 2026 decision\"\u003e2.50 to 2.75 percentage points\u003c/td\u003e\n\u003ctd data-label=\"Interpretation\"\u003eU.S. target range minus Japan’s target\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eThe U.S. Federal Reserve also decided to raise its policy rate on September 16. Japan’s increase alone therefore does not show that the rate gap between the two countries narrowed substantially. The gap above is a simple comparison of policy rates. It is not the return on an investment in U.S. Treasury securities. \u003ca href=\"https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm\"\u003eFederal Reserve’s September 2026 FOMC statement\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eAn expected rate increase may be reflected in exchange rates before it is announced. If subsequent increases come more slowly than expected, demand to buy yen may weaken. The yen’s weakness after a rate increase alone does not establish that the policy had no effect.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#how-does-the-yen-carry-trade-work\" class=\"anchor\" id=\"how-does-the-yen-carry-trade-work\"\u003e\u003c/a\u003eHow does the yen carry trade work?\u003c/h2\u003e\n\u003cp\u003eA yen carry trade involves raising funds in low-interest-rate yen. Investors use the borrowed money to buy assets in other currencies that they expect to yield higher returns. Selling yen in this process can put downward pressure on the currency.\u003c/p\u003e\n\u003cp\u003eBut the interest rate difference is not a guaranteed return. If the yen strengthens, the cost of repaying the borrowed yen rises. A fall in the price of the assets held can also cause losses. BIS analyzed how the unwinding of leveraged investments amplified market volatility in August 2024. \u003ca href=\"https://www.bis.org/publ/bisbull90.pdf\"\u003eBIS analysis of carry trade unwinding\u003c/a\u003e\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eFunding rate: The interest charged on an actual yen loan.\u003c/li\u003e\n\u003cli\u003eInvestment return: Interest earned on the investment assets and gains or losses from price changes.\u003c/li\u003e\n\u003cli\u003eForeign exchange gain or loss: The gain or loss when converting funds back into yen.\u003c/li\u003e\n\u003cli\u003eTransaction costs: Currency conversion costs, fees, and other expenses.\u003c/li\u003e\n\u003c/ul\u003e\n\u003cp\u003eCurrency hedging is a transaction that reduces exchange rate risk. But hedging costs also reflect the interest rate difference between the two countries. It is therefore difficult to eliminate exchange rate risk while still capturing the full rate difference. \u003ca href=\"https://www.bis.org/publications/qr-201609/covered-interest-parity-lost-understanding-cross-currency-basis\"\u003eBIS explanation of currency hedging and interest rate differences\u003c/a\u003e\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#why-is-the-yen-weak-despite-a-current-account-surplus\" class=\"anchor\" id=\"why-is-the-yen-weak-despite-a-current-account-surplus\"\u003e\u003c/a\u003eWhy is the yen weak despite a current account surplus?\u003c/h2\u003e\n\u003cp\u003eNot all of a current account surplus leads to immediate yen purchases. The current account includes interest and dividends from overseas investments. It also includes some profits that overseas subsidiaries retain locally.\u003c/p\u003e\n\u003cp\u003eThe Bank of Japan’s balance of payments FAQ explains how reinvested earnings are treated. Retained earnings at an overseas subsidiary are recorded as income attributable to its parent company. At the same time, they are recorded as reinvestment in the financial account. They are recorded even if no money is sent to Japan or converted into yen. \u003ca href=\"https://www.boj.or.jp/en/statistics/outline/exp/faqbpsm6.htm\"\u003eBank of Japan balance of payments statistics FAQ\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eSimply subtracting overseas investment from the current account surplus can therefore be inaccurate. The same reinvestment transaction may have corresponding entries in both statistics. To compare them, first align their periods and coverage.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eDistinction to check\u003c/th\u003e\n\u003cth\u003eEasy to confuse\u003c/th\u003e\n\u003cth\u003eCorrect interpretation\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Distinction to check\"\u003eFlows and stocks\u003c/td\u003e\n\u003ctd data-label=\"Easy to confuse\"\u003eAnnual overseas investment and overseas assets at year-end\u003c/td\u003e\n\u003ctd data-label=\"Correct interpretation\"\u003eDistinguish transactions over a period from holdings at a point in time\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Distinction to check\"\u003eGross and net figures\u003c/td\u003e\n\u003ctd data-label=\"Easy to confuse\"\u003eOverseas investment purchases and net investment\u003c/td\u003e\n\u003ctd data-label=\"Correct interpretation\"\u003eCheck whether sales, recoveries, and investment in the opposite direction are reflected\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Distinction to check\"\u003eIncome and currency conversion\u003c/td\u003e\n\u003ctd data-label=\"Easy to confuse\"\u003eProfits earned overseas and yen purchases\u003c/td\u003e\n\u003ctd data-label=\"Correct interpretation\"\u003eDistinguish local reinvestment from actual currency conversion\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Distinction to check\"\u003eStatistical period\u003c/td\u003e\n\u003ctd data-label=\"Easy to confuse\"\u003eAnnual and half-year figures\u003c/td\u003e\n\u003ctd data-label=\"Correct interpretation\"\u003eCompare figures for the same period\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eNISA is a Japanese account system that provides tax benefits on investment returns. Which assets the money in those accounts is invested in is a separate question. The entire amount invested through NISA cannot be treated as overseas investment or yen sales. \u003ca href=\"https://www.fsa.go.jp/policy/nisa2/know/index.html\"\u003eJapan Financial Services Agency’s explanation of NISA\u003c/a\u003e\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#why-is-foreign-exchange-intervention-unlikely-to-change-the-trend\" class=\"anchor\" id=\"why-is-foreign-exchange-intervention-unlikely-to-change-the-trend\"\u003e\u003c/a\u003eWhy is foreign exchange intervention unlikely to change the trend?\u003c/h2\u003e\n\u003cp\u003eIntervention to buy yen directly increases demand for the currency. It cannot, however, eliminate the interest rate gap between the two countries or investors’ long-term outlook. Incentives to sell yen may remain after the intervention.\u003c/p\u003e\n\u003cp\u003eOn August 3, 2026, AP reported confirmation of intervention by both the U.S. and Japan. The dollar-yen rate fell to around 155.20 yen during trading that day. But it is difficult to isolate the effect of intervention from the entire exchange rate change over a given period. Economic data and interest rate expectations can change at the same time. \u003ca href=\"https://apnews.com/article/7316599afed35629a27ae23a35f569fd\"\u003eAP report on U.S.-Japan foreign exchange intervention\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eJapan’s Ministry of Finance (財務省) publishes its own intervention amounts separately. The total for July 30 through August 26, 2026, was 15.3993 trillion yen. That is the Japanese amount for the entire reporting period. It should not be read as the total for one day of joint U.S.-Japan intervention. \u003ca href=\"https://www.mof.go.jp/english/policy/international_policy/reference/feio/monthly/20260828e.html\"\u003eMinistry of Finance announcement of August 28, 2026\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eWhen assessing the effect of intervention, make these distinctions:\u003c/p\u003e\n\u003cul\u003e\n\u003cli\u003eShort-term effect: Check whether it eased sharp exchange rate movements.\u003c/li\u003e\n\u003cli\u003eLasting effect: Check whether interest rate expectations and capital flows changed afterward.\u003c/li\u003e\n\u003cli\u003eScope of the figures: Distinguish estimates from official amounts.\u003c/li\u003e\n\u003cli\u003eParticipants: Look at the Japanese and U.S. amounts separately.\u003c/li\u003e\n\u003c/ul\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-relationship-between-fiscal-expansion-and-rising-government-bond-yields\" class=\"anchor\" id=\"the-relationship-between-fiscal-expansion-and-rising-government-bond-yields\"\u003e\u003c/a\u003eThe relationship between fiscal expansion and rising government bond yields\u003c/h2\u003e\n\u003cp\u003eA rise in government bond yields does not always mean a stronger yen. Its effect on the currency depends on why yields rose. Investors may also demand higher interest rates because of concerns about public finances.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eReason government bond yields rise\u003c/th\u003e\n\u003cth\u003ePossible market signal\u003c/th\u003e\n\u003cth\u003ePossible effect on the yen\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Reason government bond yields rise\"\u003eImproved growth outlook\u003c/td\u003e\n\u003ctd data-label=\"Possible market signal\"\u003eHigher expected investment returns and interest rates\u003c/td\u003e\n\u003ctd data-label=\"Possible effect on the yen\"\u003eMay support demand for yen\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Reason government bond yields rise\"\u003eInflation concerns\u003c/td\u003e\n\u003ctd data-label=\"Possible market signal\"\u003eConcern about declining purchasing power\u003c/td\u003e\n\u003ctd data-label=\"Possible effect on the yen\"\u003eDepends on the central bank’s response\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Reason government bond yields rise\"\u003eIncreased bond supply\u003c/td\u003e\n\u003ctd data-label=\"Possible market signal\"\u003eNeed to absorb more bonds\u003c/td\u003e\n\u003ctd data-label=\"Possible effect on the yen\"\u003eDepends on demand and the policy response\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Reason government bond yields rise\"\u003eWeaker confidence in public finances\u003c/td\u003e\n\u003ctd data-label=\"Possible market signal\"\u003eDemand for extra compensation for risk\u003c/td\u003e\n\u003ctd data-label=\"Possible effect on the yen\"\u003eMay accompany a weaker yen\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eSanae Takaichi’s (高市早苗) government pursued a reduction in the consumption tax on food. A related bill was also mentioned at a September 17, 2026, press conference. The same press conference explained that funding for the entire measure would be considered alongside budget reforms. There is insufficient basis to conclude that the policy would be funded entirely through government bonds. \u003ca href=\"https://www.kantei.go.jp/jp/105/statement/2026/0917kaiken.html\"\u003eJapanese Prime Minister’s Office press conference of September 17, 2026\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eGovernment targets for encouraging investment must also be distinguished from actual government spending. If private investment is included, the entire amount is not a fiscal burden. The confirmed budget and bond issuance plan are needed to determine how much funding the government will actually raise.\u003c/p\u003e\n\u003cp\u003eThere are also limits to calculating costs by multiplying existing government debt by the increase in interest rates. Interest on fixed-rate government bonds does not change immediately when market rates rise. The burden appears through new issuance and refinancing debt as it matures. Refinancing means replacing maturing debt with new debt.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#what-else-does-the-bank-of-japan-consider\" class=\"anchor\" id=\"what-else-does-the-bank-of-japan-consider\"\u003e\u003c/a\u003eWhat else does the Bank of Japan consider?\u003c/h2\u003e\n\u003cp\u003eThe Bank of Japan considers economic activity and prices as well as exchange rates. Higher interest rates tend to restrain borrowing and spending. Meanwhile, higher import prices caused by a weak yen reduce households’ purchasing power.\u003c/p\u003e\n\u003cp\u003eThe release version of GDP figures from Japan’s Cabinet Office (内閣府) also matters. The first preliminary estimate of real growth in the second quarter of 2026 was an annualized 1.1%. The second preliminary estimate, released on September 8, revised it to an annualized 1.4%. Growth from the previous quarter was 0.4%. \u003ca href=\"https://www.esri.cao.go.jp/en/sna/data/sokuhou/files/2026/qe262_2/pdf/gaiyou2622_e.pdf\"\u003eCabinet Office second preliminary GDP estimate for the second quarter of 2026\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eAn annualized rate converts one quarter’s pace of growth into the rate that would result if it continued for a year. It does not mean the economy grew by that much during the quarter. Assessing the economy also requires details such as consumption and capital investment.\u003c/p\u003e\n\u003cp\u003eIn its September announcement, the Bank of Japan assessed the economy as recovering moderately despite some weakness. It also described the effects of a weak yen and high crude oil prices on inflation. It would therefore be inappropriate to conclude that it cannot raise rates further. Actual policy will depend on subsequent data and forecasts. \u003ca href=\"https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf\"\u003eBank of Japan’s September 2026 assessment of economic activity and prices\u003c/a\u003e\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#by-circumstance-benefits-and-burdens-of-a-weak-yen\" class=\"anchor\" id=\"by-circumstance-benefits-and-burdens-of-a-weak-yen\"\u003e\u003c/a\u003eBy circumstance: Benefits and burdens of a weak yen\u003c/h2\u003e\n\u003cp\u003eThe effect of a weak yen depends on the currencies in which revenue and costs are calculated. Exporters can face higher costs if they use many imported raw materials. The share of production overseas and whether currency risks are hedged also affect the outcome.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eSituation\u003c/th\u003e\n\u003cth\u003ePotential benefit\u003c/th\u003e\n\u003cth\u003eBurdens to check as well\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Situation\"\u003eCompany with substantial foreign-currency revenue\u003c/td\u003e\n\u003ctd data-label=\"Potential benefit\"\u003eHigher yen value of foreign-currency profits\u003c/td\u003e\n\u003ctd data-label=\"Burdens to check as well\"\u003eOverseas costs, imported raw materials, currency hedging\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Situation\"\u003eJapan’s tourism industry\u003c/td\u003e\n\u003ctd data-label=\"Potential benefit\"\u003eLower cost of local purchases for foreign visitors\u003c/td\u003e\n\u003ctd data-label=\"Burdens to check as well\"\u003eRising food ingredient, energy, and labor costs\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Situation\"\u003eImport-focused company\u003c/td\u003e\n\u003ctd data-label=\"Potential benefit\"\u003eLimited direct exchange rate benefit\u003c/td\u003e\n\u003ctd data-label=\"Burdens to check as well\"\u003eHigher cost of foreign-currency payments\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Situation\"\u003eJapanese household\u003c/td\u003e\n\u003ctd data-label=\"Potential benefit\"\u003ePotential increase in the yen value of foreign-currency assets held\u003c/td\u003e\n\u003ctd data-label=\"Burdens to check as well\"\u003eHigher food and energy prices\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Situation\"\u003ePaying for a trip to Japan in won\u003c/td\u003e\n\u003ctd data-label=\"Potential benefit\"\u003eLower currency conversion cost if the won-yen rate falls\u003c/td\u003e\n\u003ctd data-label=\"Burdens to check as well\"\u003eLocal prices, airfares, currency conversion fees\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eToyota’s earnings forecast cannot be explained by the exchange rate alone. In August 2026, the company raised its annual operating profit forecast by 400 billion yen. Its forecast for the fiscal year ending March 2027 is 3.4 trillion yen. The company’s explanation also includes alternative logistics routes for the Middle East and business improvements. \u003ca href=\"https://toyotatimes.jp/en/toyota_news/financial_results_2027/001.html?padid=ag478_from_newsroom\"\u003eToyota’s FY2027 first-quarter results explanation\u003c/a\u003e\u003c/p\u003e\n\u003cp\u003eIt would therefore be inaccurate to attribute the entire forecast increase to the weak yen. Assessing exchange rate sensitivity requires a separate analysis from the company. An improved corporate profit forecast also does not guarantee a rise in the share price.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#household-burdens-as-seen-through-real-wages\" class=\"anchor\" id=\"household-burdens-as-seen-through-real-wages\"\u003e\u003c/a\u003eHousehold burdens as seen through real wages\u003c/h2\u003e\n\u003cp\u003eReal wages show the amount of goods and services that wages can buy. Even if nominal wages rise, real wages fall when prices rise faster. A weak yen can contribute to this burden through import prices.\u003c/p\u003e\n\u003cp\u003eThe Ministry of Health, Labour and Welfare’s (厚生労働省) final statistics for 2025 are as follows. They cover workplaces with at least 5 employees. The real wage figures differ depending on the consumer price index used. \u003ca href=\"https://www.mhlw.go.jp/toukei/itiran/roudou/monthly/r07/25cr/dl/pdf25cr.pdf\"\u003eMinistry of Health, Labour and Welfare’s final 2025 Monthly Labour Survey results\u003c/a\u003e\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eIndicator\u003c/th\u003e\n\u003cth\u003eChange from the previous year in 2025\u003c/th\u003e\n\u003cth\u003eBasis\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Indicator\"\u003eNominal wages in 2025\u003c/td\u003e\n\u003ctd data-label=\"Change from the previous year in 2025\"\u003eIncreased 2.5% from the previous year\u003c/td\u003e\n\u003ctd data-label=\"Basis\"\u003eTotal cash earnings\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Indicator\"\u003eReal wages\u003c/td\u003e\n\u003ctd data-label=\"Change from the previous year in 2025\"\u003eDecreased 1.3%\u003c/td\u003e\n\u003ctd data-label=\"Basis\"\u003eOverall price index excluding imputed rent for owner-occupied housing\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Indicator\"\u003eReference figure for real wages\u003c/td\u003e\n\u003ctd data-label=\"Change from the previous year in 2025\"\u003eDecreased 0.8%\u003c/td\u003e\n\u003ctd data-label=\"Basis\"\u003eOverall consumer price index\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eImputed rent estimates the benefit of living in your own home as though it were rent. It is not money actually paid to a landlord. Whether this item is included makes a difference in the real wage calculation.\u003c/p\u003e\n\u003cp\u003eThe decline in real wages cannot be attributed entirely to the weak yen. Global commodity prices and the size of wage increases also matter. Nor does improvement in a single quarter show whether earlier losses in purchasing power have been recovered.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#calculation-example-the-difference-between-884-won-and-950-won-per-100-yen\" class=\"anchor\" id=\"calculation-example-the-difference-between-884-won-and-950-won-per-100-yen\"\u003e\u003c/a\u003eCalculation example: The difference between 884 won and 950 won per 100 yen\u003c/h2\u003e\n\u003cp\u003eIf the exchange rate per 100 yen falls from 950 won to 884 won, you save 66 won. The two rates are comparison figures for the calculation. They are not presented as actual bank exchange rates on a particular date.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eComparison\u003c/th\u003e\n\u003cth\u003eCalculation\u003c/th\u003e\n\u003cth\u003eResult\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003eDifference in the cost of buying 100 yen\u003c/td\u003e\n\u003ctd data-label=\"Calculation\"\u003e950 won - 884 won\u003c/td\u003e\n\u003ctd data-label=\"Result\"\u003eDecrease of 66 won\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003ePercentage decrease in won cost\u003c/td\u003e\n\u003ctd data-label=\"Calculation\"\u003e66 won ÷ 950 won × 100\u003c/td\u003e\n\u003ctd data-label=\"Result\"\u003eAbout 6.95%\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Comparison\"\u003ePercentage increase in yen purchasable with the same amount of won\u003c/td\u003e\n\u003ctd data-label=\"Calculation\"\u003e950 ÷ 884 - 1\u003c/td\u003e\n\u003ctd data-label=\"Result\"\u003eAbout 7.47%\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eThe percentage decrease in cost and the percentage increase in yen purchasable are different because they use different starting values. Currency conversion fees are not included in these calculations.\u003c/p\u003e\n\u003cp\u003eTo compare travel costs, use the exchange rate that will actually apply. Cash conversion and card payments may have different costs. If local accommodation costs have risen, the exchange rate benefit may also shrink.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#the-effect-of-the-won-hidden-in-the-won-yen-exchange-rate\" class=\"anchor\" id=\"the-effect-of-the-won-hidden-in-the-won-yen-exchange-rate\"\u003e\u003c/a\u003eThe effect of the won hidden in the won-yen exchange rate\u003c/h2\u003e\n\u003cp\u003eThe won-yen exchange rate is affected by movements in the won as well as the yen. The relationship can be calculated using the dollar as a common reference. This assumes rates from the same point in time and on the same pricing basis.\u003c/p\u003e\n\u003cp\u003e\u003cstrong\u003eWon per 100 yen = Won per dollar ÷ Yen per dollar × 100\u003c/strong\u003e\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eWith other conditions unchanged\u003c/th\u003e\n\u003cth\u003eEffect on won per 100 yen\u003c/th\u003e\n\u003cth\u003eMeaning for someone converting won\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"With other conditions unchanged\"\u003eYen per dollar rises\u003c/td\u003e\n\u003ctd data-label=\"Effect on won per 100 yen\"\u003eFalls\u003c/td\u003e\n\u003ctd data-label=\"Meaning for someone converting won\"\u003eLower cost of buying yen\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"With other conditions unchanged\"\u003eWon per dollar rises\u003c/td\u003e\n\u003ctd data-label=\"Effect on won per 100 yen\"\u003eRises\u003c/td\u003e\n\u003ctd data-label=\"Meaning for someone converting won\"\u003eHigher cost of buying yen\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"With other conditions unchanged\"\u003eBoth rates rise by the same percentage\u003c/td\u003e\n\u003ctd data-label=\"Effect on won per 100 yen\"\u003eLargely unchanged\u003c/td\u003e\n\u003ctd data-label=\"Meaning for someone converting won\"\u003eBenefit of a weaker yen against the dollar is offset\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eA weaker yen against the dollar alone is therefore not enough to predict the cost of converting travel money. If the won weakens more, the cost of buying yen can rise. Banks’ actual exchange rates also reflect transaction costs.\u003c/p\u003e\n\u003ch2\u003e\n\u003ca href=\"#common-mistakes-in-articles-about-the-weak-yen\" class=\"anchor\" id=\"common-mistakes-in-articles-about-the-weak-yen\"\u003e\u003c/a\u003eCommon mistakes in articles about the weak yen\u003c/h2\u003e\n\u003cp\u003eWhen interpreting a weak yen, distinguish what the numbers measure from claims about cause and effect. Policy rates and government bond yields are different indicators, even though both are interest rates. Confirmed changes should also be read separately from estimates of their causes.\u003c/p\u003e\n\u003cdiv class=\"overflow-x-auto\"\u003e\u003ctable\u003e\n\u003cthead\u003e\n\u003ctr\u003e\n\u003cth\u003eCommon interpretation\u003c/th\u003e\n\u003cth\u003eWhat to check\u003c/th\u003e\n\u003c/tr\u003e\n\u003c/thead\u003e\n\u003ctbody\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eThe policy rate gap equals the investment return\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eActual funding rate, asset return, foreign exchange gains or losses, and costs\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eRising government bond yields always mean a stronger currency\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eDistinguish growth expectations from inflation and fiscal risks\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eThe entire current account surplus is cash entering the country\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eOverseas retained earnings and their treatment as reinvestment\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eA monthly intervention amount is the amount of joint intervention on a particular day\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eReporting period and amounts by participating country\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eA higher profit forecast is entirely due to the exchange rate\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eThe company’s explanation of sales volume, costs, logistics, and other factors\u003c/td\u003e\n\u003c/tr\u003e\n\u003ctr\u003e\n\u003ctd data-label=\"Common interpretation\"\u003eYen that are cheap compared with the past will rise in value\u003c/td\u003e\n\u003ctd data-label=\"What to check\"\u003eDistinguish the current price from future returns\u003c/td\u003e\n\u003c/tr\u003e\n\u003c/tbody\u003e\n\u003c/table\u003e\u003c/div\u003e\n\u003cp\u003eIf you are preparing to convert currency, check in this order:\u003c/p\u003e\n\u003col\u003e\n\u003cli\u003eDecide when you will need the yen and how much you need.\u003c/li\u003e\n\u003cli\u003eCheck the bank’s actual exchange rate per 100 yen.\u003c/li\u003e\n\u003cli\u003eCompare the final amount of won you will spend, including fees.\u003c/li\u003e\n\u003cli\u003eKeep money for travel separate from funds invested in the hope of exchange rate gains.\u003c/li\u003e\n\u003c/ol\u003e\n","tags":["Base rate","Monetary policy","Foreign exchange market","Inflation","Exchange rate","Japanese yen"],"faqs":[{"question":"If Japan raises interest rates, will the yen necessarily strengthen?","answer":"Not necessarily. The interest rate gap with the U.S. and the outlook for future policy also matter. An expected rate hike may already be reflected in the exchange rate before it is announced."},{"question":"What is the policy interest rate gap between the U.S. and Japan as of September 2026?","answer":"Japan's target is about 1.25% annually. The U.S. target range is 3.75~4.00% annually. The simple difference is 2.50~2.75 percentage points, which is not the same as the actual investment return."},{"question":"Is the yen carry trade a safe way to earn the interest rate difference?","answer":"Exchange rate and asset price movements can cause losses. If the yen strengthens, repaying yen loans becomes more costly. The cost of currency hedging must also be taken into account."},{"question":"Why can the yen weaken when Japan has a current account surplus?","answer":"The current account also includes profits reinvested overseas. That income may not result in actual transfers to Japan or conversion into yen. Demand for currency exchange from other investment and trade transactions also plays a role."},{"question":"Where can I check the size of Japan's foreign exchange interventions?","answer":"You can check the Japanese Ministry of Finance's foreign exchange intervention records. Monthly totals should be distinguished from daily breakdowns. The amount reported by Japan should not be interpreted as a total that also includes the U.S."},{"question":"Is Japan's 1.1% growth rate for the second quarter of 2026 the latest figure?","answer":"The annualized 1.1% figure was the first preliminary estimate. In the second preliminary estimate released on September 8, 2026, it was revised to an annualized 1.4%. Quarter-on-quarter growth was 0.4%."},{"question":"Does a rise in Japanese government bond yields mean public finances are unstable?","answer":"A rise in government bond yields alone does not establish that public finances are unstable. Growth and inflation expectations, government bond supply, and central bank policy all play a role. The cause of the yield increase needs to be identified."},{"question":"Is a weaker yen always good for Japanese exporters?","answer":"It can increase the yen value of profits earned in foreign currencies. On the other hand, it can raise the cost of imported raw materials and overseas expenses. The outcome depends on where production takes place and whether currency hedging is used."},{"question":"How much did real wages in Japan fall in 2025?","answer":"According to the Ministry of Health, Labour and Welfare's final statistics, real wages based on total cash earnings in 2025 fell 0.5% from the previous year. The figures cover workplaces with at least five employees. They are adjusted using the overall price index excluding imputed rent for owner-occupied housing."},{"question":"If the yen weakens against the dollar, does it also become cheaper to exchange won for yen?","answer":"If the won-dollar exchange rate stays the same, buying yen with won costs less. But if the won also weakens, that benefit may shrink. For an actual comparison, use the applicable exchange rate per 100 yen."},{"question":"Is 884 won per 100 yen the exchange rate currently in effect?","answer":"In this article, it is a figure used for calculations to compare with 950 won. It is not the current exchange rate. Check your bank's currency exchange screen for the amount including fees."}],"sources":[{"url":"https://www.boj.or.jp/en/mopo/mpmdeci/mpr_2026/k260918a.pdf","title":"Bank of Japan, Change in Monetary Market Operations Guidelines and Assessment of Economic Activity and Prices, September 18, 2026","type":"source"},{"url":"https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm","title":"Federal Reserve, FOMC Statement, September 16, 2026","type":"source"},{"url":"https://apnews.com/article/7316599afed35629a27ae23a35f569fd","title":"AP, Report on the Dollar-Yen Exchange Rate After U.S.-Japan Foreign Exchange Intervention, August 3, 2026","type":"source"},{"url":"https://www.mof.go.jp/english/policy/international_policy/reference/feio/monthly/20260828e.html","title":"Japan's Ministry of Finance, Foreign Exchange Intervention Results for July 30 to August 26, 2026","type":"data_point"},{"url":"https://www.bis.org/publ/bisbull90.pdf","title":"BIS Bulletin 90, Market Volatility and the Unwinding of Carry Trades in August 2024","type":"source"},{"url":"https://www.bis.org/publications/qr-201609/covered-interest-parity-lost-understanding-cross-currency-basis","title":"BIS, Covered interest parity lost: understanding the cross-currency basis","type":"source"},{"url":"https://www.boj.or.jp/en/statistics/outline/exp/faqbpsm6.htm","title":"Bank of Japan, Balance of Payments Statistics FAQ","type":"source"},{"url":"https://www.fsa.go.jp/policy/nisa2/know/index.html","title":"Japan's Financial Services Agency, Explanation of the NISA System","type":"source"},{"url":"https://www.kantei.go.jp/jp/105/statement/2026/0917kaiken.html","title":"Prime Minister's Office of Japan, Prime Minister's Press Conference, September 17, 2026","type":"source"},{"url":"https://www.esri.cao.go.jp/en/sna/data/sokuhou/files/2026/qe262_2/pdf/gaiyou2622_e.pdf","title":"Japan's Cabinet Office, Second Preliminary Estimate of GDP for the Second Quarter of 2026, September 8, 2026","type":"data_point"},{"url":"https://toyotatimes.jp/en/toyota_news/financial_results_2027/001.html?padid=ag478_from_newsroom","title":"Toyota Times, Explanation of FY2027 First-Quarter Results and Full-Year Outlook","type":"source"},{"url":"https://www.mhlw.go.jp/toukei/itiran/roudou/monthly/r07/25cr/dl/pdf25cr.pdf","title":"Japan's Ministry of Health, Labour and Welfare, Final Results of the 2025 Monthly Labour Survey, February 25, 2026","type":"data_point"}],"images":[{"id":1586,"url":"https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6MjM3MzIsInB1ciI6ImJsb2JfaWQifX0=--ebd19e3d0227c6bc7db50af036ccc46dcf5c6811/ai-8c9a7a6f.webp","is_representative":true,"generation_method":"ai_photo","license":"ai_generated","mime_type":"image/webp","width":1536,"height":1024,"translations":{"ko":{"alt":"환전 창구가 있는 홀에서 남성이 가파르게 상승하는 환율 그래프 앞에 서 있다.","caption":"일본이 금리를 올려도 미·일 금리 차이가 남으면 엔저가 이어질 수 있습니다.","description":null},"en":{"alt":"A man stands in a currency-exchange hall beneath a display with a sharply rising line.","caption":"The yen can remain weak after a Japanese rate hike if the U.S.–Japan interest-rate gap persists.","description":null},"ja":{"alt":"両替窓口のあるホールで、男性が急上昇する為替チャートの前に立っている。","caption":"日本が利上げしても、日米の金利差が残れば円安は続き得ます。","description":null},"es":{"alt":"Un hombre está en una casa de cambio ante una pantalla con una línea que sube con fuerza.","caption":"El yen puede seguir débil pese a una subida de tipos en Japón si persiste la brecha de tipos con EE. UU.","description":null},"id":{"alt":"Seorang pria berdiri di tempat penukaran uang, di dekat layar dengan garis yang menanjak tajam.","caption":"Yen bisa tetap lemah meski Jepang menaikkan suku bunga jika selisih suku bunga dengan AS bertahan.","description":null},"pt":{"alt":"Um homem está numa casa de câmbio diante de um painel com uma linha em forte alta.","caption":"O iene pode continuar fraco após uma alta dos juros no Japão se persistir a diferença de juros em relação aos EUA.","description":null},"zh-hant":{"alt":"一名男子站在換匯大廳，旁邊的螢幕顯示一條急遽上升的走勢線。","caption":"即使日本升息，只要日美利差仍在，日圓仍可能維持弱勢。","description":null},"de":{"alt":"Ein Mann steht in einer Wechselstube vor einer Anzeige mit steil ansteigender Kurve.","caption":"Der Yen kann trotz einer Zinserhöhung in Japan schwach bleiben, wenn der Zinsabstand zu den USA bestehen bleibt.","description":null}}},{"id":1587,"url":"https://injoys.com/rails/active_storage/blobs/proxy/eyJfcmFpbHMiOnsiZGF0YSI6MjM3MzgsInB1ciI6ImJsb2JfaWQifX0=--f89d5b96240fd476ab7ba1d2467989c9b6b6aad6/ai-51f650ae.webp","is_representative":false,"generation_method":"ai_semi","license":"ai_generated","mime_type":"image/webp","width":1536,"height":1024,"translations":{"ko":{"alt":"일본 슈퍼마켓에서 장바구니를 든 남성이 식용유 진열대의 가격표를 살펴본다.","caption":"엔저로 수입품 가격이 오르면 가계의 장보기 부담이 커질 수 있습니다.","description":null},"en":{"alt":"A man holding a shopping basket studies price labels beside cooking oil in a Japanese supermarket.","caption":"A weaker yen can raise the cost of imported goods for households.","description":null},"ja":{"alt":"日本のスーパーで、買い物かごを持った男性が食用油売り場の値札を見つめている。","caption":"円安で輸入品の価格が上がると、家計の負担が増える可能性があります。","description":null},"es":{"alt":"Un hombre con una cesta examina las etiquetas de precios junto a los aceites de cocina en un supermercado japonés.","caption":"La debilidad del yen puede encarecer los productos importados para los hogares.","description":null},"id":{"alt":"Pria yang membawa keranjang belanja memperhatikan label harga minyak goreng di supermarket Jepang.","caption":"Pelemahan yen dapat menaikkan biaya barang impor bagi rumah tangga.","description":null},"pt":{"alt":"Homem com cesta de compras observa etiquetas de preços junto a óleos de cozinha num supermercado japonês.","caption":"A desvalorização do iene pode encarecer os produtos importados para as famílias.","description":null},"zh-hant":{"alt":"日本超市裡，一名提著購物籃的男子查看食用油貨架上的價格標籤。","caption":"日圓走弱可能推高進口商品價格，增加家庭開支。","description":null},"de":{"alt":"Ein Mann mit Einkaufskorb betrachtet Preisschilder bei Speiseöl in einem japanischen Supermarkt.","caption":"Ein schwächerer Yen kann importierte Waren für Haushalte verteuern.","description":null}}}],"published_at":"2026-10-01T20:54:23+09:00","updated_at":"2026-10-01T20:54:23+09:00","license":"cc_by","translation_status":"reviewed","available_locales":["ko","en","ja","es"],"data_locales":["ko","en","ja","es","id","pt","zh-hant","de"],"url":"https://injoys.com/en/articles/yen-weakness-2026-interest-rate-hikes-explained"}