The yen's weekly decline may mark its largest since May, as intervention struggles to counter fundamental pressures.

⑴ The Japanese yen is set to record its largest weekly decline since May this week, with the USD/JPY exchange rate falling below the 163 mark and hitting a 40-year low. Despite repeated verbal warnings from Japanese officials aimed at stabilizing the exchange rate, market response has been extremely limited.⑵ Analysts widely believe that even if the Bank of Japan actually intervenes in the market, it can only buy time for policymakers rather than reverse the trend. Unless the central bank moves more decisively toward raising interest rates, structural depreciation pressure will persist.⑶ The U.S. Treasury on Thursday unusually joined the calls for Japan to raise rates, clearly stating that excessive exchange rate volatility is undesirable. This external pressure further narrows Japan's policy options.⑷ The strength of the U.S. dollar is another key driver of yen weakness. June’s U.S. inflation data briefly brought hopes of cooling prices, but escalating Middle East conflicts have reignited concerns about energy costs, with oil prices breaking above $100 again this week. Federal Reserve Chair Walsh reiterated the determination to seriously push inflation back to the 2% target.⑸ The euro edged higher against the U.S. dollar to 1.1382. Although the European Central Bank kept its rates unchanged, it left open the possibility of a rate hike in September, with markets currently pricing in around a 30% chance. The British pound rose slightly but is poised to end its three-week winning streak. The Swiss franc was basically flat against the U.S. dollar, with the Swiss National Bank clearly denying currency manipulation.⑹ U.S. Treasury yields remain elevated, with the 30-year yield stable above 5% and the 2-year yield hovering around 4.33%, the highest since February 2025. The interest rate environment continues to suppress low-yielding currencies such as the yen.