The yen briefly hit its weakest level since 1986. More market-relevant than the
level is that Japan has exhausted conventional policy levers yet the currency
kept weakening: 1) rate hikes failed to stop the decline; 2) record defense
spending did not support the yen; 3) repeated official warnings and calls for
decisive action had no effect; 4) stabilizing oil prices did not arrest
depreciation. The common failure points to constraints in the global dollar
funding system. When that system functions normally trade and credit expand,
allowing currencies like the yen to appreciate; when it is strained, dollar
scarcity hits economies exposed to global trade and dollar-priced imports
regardless of domestic central bank policy.
