The Bank of Japan raised its benchmark interest rate to 1.0% on June 16, 2026, the highest level since September 1995. The 25 basis point increase, the first since December 2025, was supposed to signal resolve. Instead, the yen continued trading at or above 160 per US dollar into early July 2026.

Before this hike, the BOJ had raised rates to 0.75% in December 2025. The US Federal Reserve’s rates sit significantly higher, making dollar-denominated assets far more attractive to yield-seeking capital.

Japan also tried the direct approach. The BOJ intervened in foreign exchange markets, spending roughly $73 billion, or 11.7 trillion yen, between April and May 2026. The yen briefly recovered after each intervention and then resumed its slide.

Energy costs have surged, driven largely by the ongoing conflict in Iran, which has disrupted regional supply chains and kept commodity prices elevated. Import-dependent Japan pays for energy in dollars, so a weaker yen means more expensive imports, which feeds more inflation, which erodes purchasing power further.

What the experts are saying

Toshihiro Nagahama, a member of a Japanese government advisory panel, has argued that the BOJ needs to keep hiking, recommending a pace of roughly one increase every six months.

Sayuri Shirai, a former BOJ board member, warned that if the Federal Reserve continues tightening its own monetary policy, the yen could weaken further to somewhere between 163 and 165 per dollar.

What this means for risk assets and crypto

Yen weakness has historically been associated with carry trades, a strategy where investors borrow in low-yield currencies like the yen and deploy that capital into higher-yielding assets elsewhere. When the carry trade is working, it pushes capital into risk assets globally. When it unwinds, it pulls capital back fast and hard.

The risk for crypto investors is the unwind scenario. If the BOJ hikes aggressively enough to close the yield gap, or if the Fed pivots and cuts rates, the carry trade reverses. The August 2024 carry trade unwind, when global markets lurched on a surprise BOJ rate hike, is a recent example of how quickly this dynamic can shift.

Shirai’s warning about yen weakness extending to 163-165 is conditional on continued Fed tightening. For now, the yen sitting near 160 with BOJ rate hikes failing to produce a durable recovery suggests the structural pressures are winning.