Yen drops to lowest level in eight months

The Japanese yen weakened past 152 per dollar on Wednesday, extending its sharp decline and hitting its lowest level since February, as softer-than-expected wage data dampened prospects for a near-term Bank of Japan (BOJ) rate hike.

The yen has already fallen more than 3% so far this week, underscoring the growing divergence between Japan’s ultra-loose monetary stance and tightening or stable policies in other major economies.

Fresh data showed that Japan’s real wages fell 1.4% year-on-year in August, marking the eighth consecutive monthly decline as inflation continued to outpace nominal pay growth. The persistent erosion of purchasing power has weighed heavily on household spending, complicating the BOJ’s efforts to foster a virtuous cycle between wage increases and price stability.

Analysts noted that without a sustained rebound in real income, it will be difficult for the central bank to justify tightening policy, even as inflation hovers modestly above its 2% target.

BOJ Governor Kazuo Ueda reiterated recently that the central bank remains prepared to resume rate hikes if economic and price conditions evolve as expected, but he also emphasized growing external risks, including the potential fallout from U.S. tariff measures and global trade frictions. Market participants interpreted his comments as signaling caution rather than commitment, reinforcing expectations that any further normalization of Japanese monetary policy will proceed gradually, if at all, in the coming months.

On the political front, investors are also digesting the implications of Sanae Takaichi’s victory in the ruling party leadership race, which paves the way for her to become Japan’s next prime minister.

A long-time ally of former leader Shinzo Abe, Takaichi is widely regarded as a staunch advocate of “Abenomics”, favoring aggressive fiscal stimulus and accommodative monetary policy to support growth. Her leadership is expected to usher in a new round of large-scale government spending programs, particularly in areas such as energy security, digital transformation, and defense.

The combination of soft domestic data, expansionary fiscal expectations, and limited monetary tightening prospects has deepened downward pressure on the yen. Meanwhile, the U.S. dollar’s strength—driven by safe-haven flows amid global political uncertainty and the ongoing U.S. government shutdown—has amplified the currency’s losses.

Market watchers warn that if the yen continues to depreciate beyond 152, it could trigger verbal or even direct intervention from Japanese authorities, who have repeatedly stated that they are monitoring foreign exchange movements “with a high sense of urgency.”

Still, unless wage growth shows a convincing rebound or the BOJ signals a more decisive policy shift, analysts expect the yen to remain under strain, potentially testing new lows in the 153–154 per dollar range in the near term.