The yen broke ¥161.96 to the dollar overnight and traded at levels not seen since December 1986.

It briefly touched ¥161.97 in New York on Monday and settled back to about ¥161.92 as the Tokyo market opened on Tuesday.

For about a week, Japan’s currency has been teetering on the edge of four-decade lows and repeatedly testing those lows.

It has also been well within the range in which analysts expect intervention.

Finance Minister Satsuki Katayama has warned that the government stands ready to take “decisive action.”

The market remains skeptical about the effectiveness of government efforts to prop up the yen, and pressure on the currency has been steady. 

While any intervention is expected to lift the yen to some extent in the short term, some investors are betting that it will be difficult to stop the currency from weakening.

Concerns are largely centered around fiscal and monetary policy.

Japan’s key rate is now 1% compared with a U.S. federal funds rate that is set in a range of 3.50% to 3.75%, and expectations for U.S. rate increases have grown while the Bank of Japan’s rate path is already seen as priced in.

The yen hit ¥161.96 on July 3, 2024. Intervention followed, with the Japanese government spending about $37 billion to support the currency. The yen returned to about ¥140 to the dollar.

In April, Japan’s currency reached ¥160.72 to the dollar, and the government propped up the yen again, spending a reported $73 billion. The currency traded to about ¥155 to the dollar following that intervention before weakening to current levels.