Yen Keeps Weakening Despite Hike In Japanese Interest Rates Many currency forecasters and policymakers believed that the value of the yen would recover once Japan began raising its interest rates. That would narrow the gap between US and Japanese interest rates and thus stop luring as much money from the US to Japan. More demand for dollars instead of yen pushes down the yen’s market value. It has not worked out that way. It has not worked out that way. Instead, there have been periods of tight correlation between the interest rate gap and the yen/$ rate, followed by sharp ratchets downward. Back in 2001-2012, when the gap between the interest rates on US and Japanese ten-year government bonds was 2 percentage points, the trendline predicted the yen at ¥95/$. However, from January 2021 through October 2025, the same 2-point gap led to a yen worth only ¥125/$. So, many forecasters expected the yen to shift back toward ¥125 as Japan’s interest rates rose. Instead, the opposite happened. Today, at a 2-point rate gap, the yen is worth only ¥158/$. The fundamentals behind this make currency intervention futile. For details, see