The Japanese yen weakened to a four-month low against the U.S. dollar on October 31, 2025, posting its sharpest monthly decline since July amid disappointment over the Bank of Japan’s (BOJ) conservative stance on interest rates, with the currency down over 3% in October.

Currency values like the yen fluctuate based on interest rate differences between countries; when Japan’s rates stay low (to encourage borrowing and growth), investors sell yen for higher-yield options like U.S. dollars, making the yen cheaper. This “carry trade” amplifies drops, affecting everything from import costs to travel affordability.

A weaker yen inflates import prices, squeezing Japanese households and manufacturers reliant on foreign energy, potentially slowing GDP growth to below 1% in FY26; it benefits exporters like Toyota by making products cheaper abroad, but erodes consumer spending power and pressures the BOJ for hikes, while aiding U.S. competitors in electronics by making American goods pricier in Japan.