The Japanese yen just hit its weakest level against the dollar since 1986.
Dollar/yen touched 161.97 on Monday, breaking the exact level where Japan intervened in 2024.
Between late April and late May, Japan spent a record 11.73 trillion yen ($72.5 billion) to prop up the currency. It worked for about a month.
Then the yen gave back every single gain and broke to new lows. $72.5 billion burned through with nothing to show for it.
The problem is structural. The BOJ raised rates to 1% on June 16, the highest since 1995. The yen barely moved. The US-Japan rate differential is still 263 basis points.
As long as that gap exists, the carry trade is too attractive. Traders borrow yen at 1%, park it in dollars at 3.5%+, and the yen bleeds.
The politics make it worse. PM Takaichi wants aggressive fiscal spending on AI, chips, and infrastructure while simultaneously pressuring the BOJ to slow rate hikes.
That's the exact opposite of what the yen needs. Tokyo is telling markets it wants a stronger yen while keeping the policy that's destroying it.
Japan's Finance Minister says the government is ready to take "bold action." The market doesn't believe her. Verbal intervention has failed every time for four years. Actual intervention has failed twice.
And Japan is funding these interventions by selling US Treasuries, which has ripple effects in global bond markets.
Analysts are now openly discussing 200 yen to the dollar. Japan's 30-year bond yield is approaching 4%.
The country is trapped: too much debt to tolerate higher rates, too wide a gap to defend the currency, and a government that wants to spend more while its purchasing power evaporates.
This is what a fiat currency crisis looks like in a G7 economy. Not a sudden collapse.
A slow grind that no amount of intervention can reverse because the structural incentives all point one direction.
