The Japanese Yen is currently engaged in a smoke-free devaluation war.

Currently, the USD/JPY exchange rate has fallen to around 155.70, just one step away from the critical 160 threshold, with a new 30-year low in sight. The depreciation trend has continued for over four years with no end in sight—even when the Bank of Japan unexpectedly raised the benchmark interest rate to 0.75% in December (the highest since 1995), the yen still continued to fall, with a single-day plunge of over 1%. This is no longer just an economic issue but a collective collapse of currency confidence.

Major players on Wall Street have already sensed the blood. Top investment banks like JPMorgan Chase and BNP Paribas are collectively bearish, predicting that by the end of 2026, the yen will slide into the 160-165 range. The short-seller armies are frantically hunting this currency, once hailed as a "safe haven."

Behind this devaluation frenzy, three main culprits hit the core issues— a 300 basis point interest rate differential between the US and Japan has wiped out the attractiveness of Japanese assets, and carry trade has reignited; real interest rates have fallen into negative territory, with prices rising for 51 consecutive months but the situation remains unchanged; Japanese retail investors and companies are continuously exporting capital, reaching a ten-year high, further pressuring the exchange rate as capital outflows accelerate.

The Bank of Japan is trapped in a dilemma. Raising interest rates would choke the already fragile economy—Q3 GDP plunged by 1.8%; not raising rates would lead to a vicious cycle of inflation and depreciation spiraling out of control. The government has allocated 21.3 trillion yen for fiscal stimulus, but this has been completely offset by the central bank’s tight monetary policy. With debt-to-GDP ratios exceeding 250%, there is little room for maneuver. The lessons of history are clear—spending 9.8 trillion yen on currency interventions only provided a fleeting relief. Now, even verbal warnings no longer move the market.

The most direct cost of yen depreciation falls on ordinary Japanese people. CPI has surged to 3.0% year-on-year, quietly eroding purchasing power, and corporate import costs are rising. The global carry trade, amounting to $19.2 trillion, is also trembling, and this turbulence could ripple through the entire international market.

Can the 160 level hold? Will the Bank of Japan pull out its ultimate weapon? Will this currency storm spill over into the crypto market? These questions are waiting for answers.