"Japan Faces Shocking Analysis: Yen Now Weaker Than the Lira, Crowned as World’s Weakest Currency"

Robin Brooks, Senior Fellow at the Brookings Institution

"Japan's massive public debt has made it virtually impossible to raise interest rates"

Analysis indicates that the Japanese yen is currently the weakest among major currencies, drawing significant attention. There are claims that the yen’s real purchasing power has fallen below that of the Turkish lira, which has long experienced chronic weakness against the US dollar.

On May 26 (local time), Nihon Keizai Shimbun (Nikkei) featured an analysis of the yen by Robin Brooks, Senior Fellow at the Brookings Institution in the United States. Two days earlier, Brooks had stated on his X (formerly Twitter) account, "The Japanese yen is now the world’s weakest currency, surpassing even the Turkish lira."

He explained, "This outcome has long been anticipated," and analyzed that "the direct cause is Japan’s massive public debt, which has made it practically impossible to raise interest rates to stabilize the currency."

Japanese yen. Yonhap News Agency

According to Nikkei, the basis for this claim is the real effective exchange rate (REER). The REER is an index that comprehensively indicates the real purchasing power and international price competitiveness of a country's currency compared to the currencies of its major trading partners. Unlike a simple one-to-one exchange rate comparison, it is calculated by reflecting trade volumes and fluctuations with multiple countries.

Nikkei reported that while the real effective exchange rate of the yen has continued to decline, the Turkish lira, which has experienced repeated weakness over the years, is actually rebounding.

Real effective exchange rate difference between the Turkish lira and the Japanese yen. Robin Brooks, X

The Turkish lira was considered the world’s weakest currency in the 1990s and early 2000s. In 2021, President Recep Tayyip Erdogan pushed ahead with a policy of cutting the benchmark interest rate despite soaring inflation, causing the lira’s value to plunge by more than 40% in a single year.

Nikkei warned that the yen’s real effective exchange rate could weaken further, pointing out that inflationary pressures are intensifying in Japan as the Strait of Hormuz is blocked due to the Middle East crisis, and the government is increasing fiscal pressure by allocating additional budgets to support energy subsidies.

The outlet also cited the view of SMBC Nikko Securities, which expects that although Japan’s trade balance recently turned to a surplus, the deficit could again expand to as much as 5 trillion yen (about 4.7 trillion KRW) annually due to the ongoing impact of the Middle East crisis. Nikkei noted, "There is a possibility that the yen could face further headwinds in terms of the trade balance."

This content was produced with the assistance of AI translation services.