Why has the yen depreciated so much, reaching the 162-yen level for the first time in 39 and a half years

With strong US economic indicators and expectations of rate hikes driving demand for the dollar,the interest rate gap with the Bank of Japan's policy rate at 1.0% (the highest level since 1995)is widening, which is the major factor.

This gap is accelerating the "yen carry trade." The yen carry trade refers to borrowing the low-interest yen and investing in higher-interest assets such as the dollar. As a result, yen selling has continued, driving the yen down to extreme levels in the 162 range.

Finance Minister Katayama has stated that “appropriate action when necessary.”However, looking at past intervention results, it often provides only temporary effects, and market caution is rising.

The BOJ raising rates with limited effect is due to the still high U.S. Federal Reserve rates and structural constraints in Japan’s large fiscal deficit that make rapid rate hikes difficult.