Higher interest rates are needed to address a growing yield gap with the U.S. Japanese authorities have found themselves having to step into markets again and again to prop up the yen, this time with assistance from the U.S. government. To escape this “mowing the lawn” dilemma, the country, and specifically the Bank of Japan, has to address the root causes of yen weakness.

Viewed through one lens, the yen appears undervalued. Ask anyone who has traveled to Japan recently and they will rave about the bargains to be had. That is a stark shift from the era of yen overvaluation 15 years ago, when a dollar was worth about 80 yen and a trip to the country was a painful expense.

The article stresses that merely topping up liquidity is insufficient; a structural policy shift is required. The Bank of Japan must recalibrate its stance, possibly raising rates or tightening monetary tools, to restore confidence and curb the slide.

Ultimately, the narrative underscores that only the central bank’s decisive action can arrest the yen’s decline, as market interventions alone have proven temporary and costly.