The yen has fallen to a 40-year low, as Japan is troubled by a “death spiral” in its policies

(1) This week, the USD/JPY exchange rate surpassed the 163.00 level, with the yen falling to its lowest point in 40 years. In addition to external factors such as overall US dollar strength and rising oil prices, Japan's own policy mix is facing challenges. (2) Global investors hold a negative view of Japan's current combination of fiscal and monetary policies. The fiscal stance is overly loose, and the degree of monetary tightening is clearly insufficient; the lack of coordination between the two raises concerns in the market about the independence of the Bank of Japan. (3) This policy "death spiral" continues to put pressure on the yen: loose fiscal policy requires a low interest rate environment, but extremely low rates further intensify capital outflows and currency depreciation. Depreciation pushes up import costs but has not significantly boosted export competitiveness. (4) Japan's policy options for escaping this predicament are highly limited. The effectiveness of direct intervention in the foreign exchange market is questionable and faces international resistance. Raising interest rates could undermine the already fragile economic recovery and debt sustainability. This dilemma is unlikely to be resolved in the short term.