Japan’s currency crisis is deepening as the yen plunges to historic lows, creating severe economic pressures that are eroding living standards and threatening stagflation. The Bank for International Settlements revealed in February that the yen’s real effective exchange rate plummeted to 67.73 in January—the lowest level since Japan adopted floating exchange rates in 1973, representing approximately one-third of its 1995 peak value.
This dramatic depreciation stems from fundamental structural weaknesses including prolonged economic stagnation, widening interest rate differentials with the United States, heavy dependence on energy imports, demographic decline, and mounting fiscal burdens. According to Professor Yangchoon Kwak of Rikkyo University’s College of Economics, these factors collectively exert sustained medium to long-term pressure on the currency.
The weak yen has triggered a dangerous inflationary spiral in the import-dependent nation. Japan’s core consumer price index rose 3.1% year-on-year in 2025, marking the fourth consecutive annual increase. Among 522 surveyed items, 440 recorded price hikes with rice prices skyrocketing 67.2% and egg prices increasing 10.3%.
Compounding the crisis, real wages adjusted for inflation fell 1.3% in 2025—the fourth straight annual decline—creating a painful squeeze on household budgets. The situation has prompted major corporations including McDonald’s Japan and East Japan Railway to announce significant price increases, while Tokyo apartment rents have surged by ¥63,000 ($400) over five years.
Economists warn that if prices continue outpacing wage growth, Japan could face stagflation—a combination of economic stagnation and inflation that further undermines consumer confidence. The government has implemented temporary relief measures including gasoline tax cuts and utility subsidies, but experts question whether these will offset broader inflationary pressures.
Meanwhile, Prime Minister Sanae Takaichi faces criticism after admitting to distributing ¥30,000 congratulatory gifts to ruling party lawmakers following recent elections—a move opposition leaders characterize as reflecting outdated political culture amid ongoing public distrust over money and politics.