A G7 currency is returning to a level not seen since the 1980s. The yen is trading near 164 to the dollar, in the zone of its lowest levels in forty years, as the Bank of Japan is set to announce a highly anticipated decision on Friday, July 31. This is not just a market story: behind this drop lies the purchasing power of the Japanese, energy prices, the competitiveness of global companies, and a potential intervention by authorities.
The timing intensifies the tension. The Bank of Japan is meeting on July 30 and 31, according to its official schedule, after raising its main rate to 1% in June, a peak not seen in three decades. Despite this tightening, the gap with U.S. rates remains wide enough to support the dollar. On Tuesday, Reuters reported the greenback around 163.83 yen, while traders were monitoring every statement from Tokyo that could signal a new defense of the currency.
Why the Yen Has Returned to the Red Zone
Several forces are mutually reinforcing each other. The first is the yield gap between the United States and Japan. When dollar investments yield more than those in yen, investors are incentivized to hold the U.S. currency. Concerns about inflation and the prospect of a firm policy from the Federal Reserve have recently pushed U.S. yields higher, giving the dollar a new advantage.
The second force comes from energy. Japan imports most of its oil and gas, which are typically billed in dollars. Any increase in oil prices forces Japanese companies to buy more greenbacks. Reuters reported on Wednesday a rebound of over 3% in Brent crude, reaching $86.80, amid expected declines in U.S. stocks and ongoing uncertainties in the Middle East. For Tokyo, expensive oil and a weak yen create a trap: each exacerbates the cost of the other.
The Bank of Japan Faces an Almost Impossible Choice
The Bank of Japan may be tempted to send a very strong message, even raising rates further. An increase would make yen investments more attractive and show that the institution does not tolerate an endless depreciation. However, the Japanese economy remains sensitive to the cost of credit. Households, businesses, and especially a heavily indebted state would struggle to bear a too-rapid normalization.
The market is therefore awaiting both the words and the rate itself. A status quo accompanied by a credible commitment to continue increases could support the currency. Conversely, a cautious discourse could be interpreted as a green light for further yen sales. The publication of economic and price forecasts will be decisive: it will indicate whether the central bank sees inflation as a lasting danger or as an imported shock likely to subside.
Direct Intervention: Tokyo’s Spectacular Weapon
The Japanese government has another weapon: selling dollars and then buying yen in the market. Tokyo has already used this method when movements seemed too rapid or disorderly. An intervention can provoke a sharp rebound and cost speculators dearly, but its effectiveness over time remains limited if monetary policy continues to favor the dollar.
This is why currency traders are less focused on an official threshold, which does not exist, than on the speed of the decline and the language used by the Ministry of Finance. The faster the currency weakens, the higher the probability of action. The risk of intervention makes the market explosive: a single comment can trigger automatic orders and move the exchange rate by several yen in minutes.
For the Japanese, the Real Price is Seen at the Supermarket
A weak currency helps some exporting companies, as their revenues earned abroad are worth more once converted. It also makes Japanese products more competitive. However, the benefits are unevenly distributed. Households pay more for fuel, imported food, components, and travel abroad. The yen’s decline thus becomes an invisible tax on daily life.
The increase to 1% in June, reported by the Associated Press and confirmed by the Bank of Japan’s publications, already responded to this pressure. The institution had highlighted the effects of the weak yen and energy costs on prices. The difficulty is now as much political as it is economic: raising rates to protect the currency can slow activity, but doing nothing can fuel inflation and consumer anger.
Tourism, Luxury, and Automotive: The Winners Are Not Always Who You Think
For foreign visitors, Japan appears cheaper. Hotels, restaurants, transportation, and luxury purchases become more accessible once converted into euros or dollars. This attractiveness fuels tourism and sales in department stores, but it can also exacerbate the saturation of the most frequented destinations and increase certain goods for residents.
Automakers and Japanese industrial groups can benefit from a currency advantage in international markets. However, many now produce close to their customers and purchase components in foreign currencies. The calculation is therefore less automatic than before. An unstable currency complicates investments, contracts, and pricing, even for companies presumed to be winners.
What the Yen’s Decline Means for France and Europe
The shock directly concerns French companies. The General Directorate of the Treasury notes that in 2025, the yen had already depreciated by 13.6% against the euro, with an average rate of 169 yen for one euro. The European Central Bank reported 186.23 yen for one euro on July 23, 2026. Japanese products thus gain price competitiveness in Europe, while French exporters to Japan see their products becoming more expensive for local consumers.
Luxury goods, wines and spirits, aerospace, pharmaceuticals, and French agri-food must therefore balance between price increases, margin reductions, and hedging strategies. Conversely, European travelers benefit from increased purchasing power in Japan. Companies importing Japanese equipment can also take advantage of the exchange rate, provided that suppliers do not pass on their own energy and raw material costs.
A Global Test for Markets After the Fed
The Japanese meeting comes in a week dominated by major central banks. Every signal from the Fed alters the rate gap that weighs on the yen. A more restrictive America and a cautious Japan would prolong the pressure. Conversely, a combative Bank of Japan could trigger a rapid unwinding of financial strategies based on borrowing in low-cost yen, known as the âcarry trade.â
This mechanism explains why a decision made in Tokyo can move stocks, bonds, and currencies around the world. When investors hastily buy yen to repay their loans, they sometimes have to sell other assets. The Japanese currency, long seen as a source of cheap financing, thus remains a central piece of global liquidity.
Friday’s Verdict Could Trigger the Next Shock
Three elements will be watched on July 31: the decision on the rate, the new inflation forecasts, and the tone used regarding the yen. The reaction of the Ministry of Finance will also be crucial. A maintenance of the rate will not necessarily equate to inaction if the bank clearly promises a new increase. However, communication deemed too vague could push the currency towards a new record low.
Ultimately, the yen tells a story that is broader than that of Japan. It reveals how oil, wars, U.S. rates, and investment flows can concentrate on a single currency until they disrupt an entire economy. As the verdict of the Bank of Japan approaches, the world is not just looking at a number on a screen. It is waiting to see if Tokyo can still regain control.
Sources
- Reuters via Business Recorder â yen level, dollar, and market expectations, July 29, 2026.
- Reuters via Business Recorder â oil rebound and energy context, July 29, 2026.
- Bank of Japan â official schedule of monetary policy meetings, accessed July 29, 2026.
- Associated Press â Japanese rate hike to 1% and pressure from weak yen, June 16, 2026.
- European Central Bank â euro-yen reference rate, July 2026.
- General Directorate of the Treasury â bilateral trade France-Japan and exchange rate effect, 2026.
