Yen approaches 40-year low, government's basic policy also warns BOJ

The yen exchange rate fell to 161.93 yen per dollar, approaching a low not seen in about 40 years since 1986. The widening interest rate differential between Japan and the U.S. is the backdrop, putting pressure on the government and BOJ to respond. Meanwhile, the government included 'appropriate monetary policy management' in its basic policy framework, signaling a stance to caution the BOJ against continued interest rate hikes. Next week, key events such as the BOJ Tankan and U.S. employment statistics are upcoming, which will influence the direction of the exchange rate.

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Yen exchange rate approaches 40-year low, falling to 161.93 yen The yen briefly fell to 161.93 yen against the dollar, approaching its lowest level since December 1986. As expectations of U.S. interest rate hikes strengthen, the widening Japan-U.S. interest rate differential is intensifying yen depreciation pressure. While wariness of government currency intervention is rising, the view that intervention effects would be limited is spreading in the market. 1 2

Government's basic policy includes 'appropriate monetary policy', possibly warning BOJ The government has decided to state in the draft of its basic policy to be formulated in July that appropriate monetary policy management is important for achieving a 'strong economy'. This is seen as an intention to put the brakes on the BOJ's additional rate hikes, and tension between the government and BOJ over monetary policy is mounting. 3

Next week's focus is on BOJ Tankan and U.S. employment data, influencing market direction Next week, the BOJ Tankan (large manufacturers' business sentiment) on July 1 and the U.S. June employment report on July 2 are scheduled. In the Tankan, the extent of upward revision in capital expenditure plans will be watched, while in the U.S. employment data, the rise in average hourly earnings will be noted. Also, July 1 is the deadline for a decision on updating USMCA (United States-Mexico-Canada Agreement). 4 5

Keidanren aims to send delegation to China within fiscal year; China gives positive response Keidanren, together with the Japan-China Economic Association and the Japan Chamber of Commerce and Industry, has decided to send a top-level delegation of the three organizations to China within fiscal 2026. A Keidanren executive who visited China in June received a positive response from the Chinese side regarding acceptance. The aim is to use resumption of economic exchanges as a foothold to improve Japan-China relations, which have cooled over issues such as Taiwan. 6

Megabanks request government support for huge dollar procurement for U.S. investment It has been revealed that megabanks have requested government support as they are struggling with huge dollar procurement for investments in the United States. As the yen's depreciation inflates dollar procurement costs, the impact is beginning to show on financial institutions' funding. 7