Japan’s government battles to support the yen while analysts examine trade models, interest‑rate differentials and even the price of katsu curry to gauge its true value. The yen rose sharply from a 40‑year low of ¥164 to almost ¥155 after a historic joint intervention by Tokyo and Washington, but has since slipped back to around ¥159. Despite this, purchasing‑power‑parity (PPP) estimates set a “fair” rate near ¥97 and the Big‑Mac index echoes that figure, underscoring that the currency is “dirt cheap” in any fundamental model.

Investors remain wary of Japan’s massive debt—roughly 200 % of GDP—and of a sluggish economy that has yet to accelerate out of decades of low growth and inflation. Interest‑rate differentials reinforce the view that the yen is undervalued: Nomura analysts cite a 5.5% gap on the three‑month US‑Japan spread and a 14.5% gap on the 10‑year spread. Short‑term models, however, see the spot price as near‑fair, and Morgan Stanley projects a possible swing to ¥165–167 before a rebound if U.S. rates fall.

To reverse the slide, the government must convince markets of fiscal sustainability, and the Bank of Japan may need larger rate hikes to erode the carry‑trade that has weighed on the currency. Past interventions have worked only in the very short term. Analysts also note that the Bank of Japan’s policy stance is closely watched; even modest tightening could shift expectations and help anchor the yen. If the currency remains over‑discounted, global investors may continue to seek risk‑adjusted assets, further challenging the yen’s stability.