The Japanese yen is under renewed pressure as market participants increasingly price in a potential interest rate hike by the Federal Reserve, which would further strengthen the US dollar and widen the yield differential between the two economies.
Analysts warn that this policy divergence could push the currency pair to levels not seen in decades, exacerbating the yen's recent volatility.
The yen has already recorded its largest weekly decline in more than two months, sinking to levels not seen in four years against the greenback.
This sharp depreciation underscores the growing gap between the Federal Reserve’s hawkish stance and the Bank of Japan’s continued accommodative policy.
The widening spread is attracting carry trades and speculative selling, adding to the downward momentum on the yen.
Former Bank of Japan policymaker Sayuri Shirai has highlighted the significant downside risk, suggesting the yen could weaken to 165 per dollar if the Fed implements a rate increase this year.