The Japanese yen depreciated to the mid-161 range per U.S. dollar in the New York foreign exchange market on Thursday [1].

This decline marks the weakest level for the currency in approximately one year and 11 months [2]. The rapid depreciation highlights the growing pressure on the Japanese economy as it struggles with a widening interest-rate gap between Tokyo and Washington.

Market analysts said the slide is driven by expectations that the U.S. Federal Reserve will raise interest rates later this year [2]. This outlook widens the interest-rate differential between the U.S. and Japan, prompting investors to sell yen and buy dollars to seek higher yields [2].

The currency has faced significant volatility throughout the current period. At the end of April, the yen had previously fallen to the mid-160 yen per dollar range [1].

Earlier this month, intervention by the Japanese government and the Bank of Japan temporarily pushed the yen back up to the mid-155 yen per dollar range [1]. However, those gains were erased as market sentiment shifted back toward the dollar.

Traders said the current trajectory has increased caution regarding further government intervention. The Japanese authorities have historically stepped into the market to prevent excessive volatility that could destabilize domestic prices, and increase the cost of imports.

“The yen depreciated to the mid-161 range per US dollar in the New York foreign exchange market”

The continued depreciation of the yen reflects a fundamental divergence in monetary policy between the U.S. and Japan. While the Federal Reserve maintains a tighter stance to combat inflation, Japan's relative reluctance to aggressively raise rates makes the yen less attractive to investors. This trend increases the cost of energy and food imports for Japanese consumers, potentially forcing the government to engage in more frequent and aggressive market interventions to stabilize the currency.