🚨 Japan is facing a serious problem

USD/JPY has returned to 162.7, which is a very dangerous level.

On June 16, the Bank of Japan raised interest rates to 1%, the highest since 1995. This usually strengthens the currency, but the yen barely moved.

Before that, in April and May, Japan spent a record 11.73 trillion yen ($73.5 billion) to directly buy yen. It strengthened for a few days, but then the entire trend completely reversed.

In early July, Japan tried another approach. Reports indicated that the government wanted to push its massive pension fund, GPIF, to buy more domestic assets rather than foreign ones. The yen also strengthened after that news was released.

But none of it lasted. Today, USD/JPY has returned to the exact same level it reached before all these events occurred.

The weak yen is not just a currency issue for Japan.

It has increased the cost of every barrel of oil and every unit of food imported into Japan, directly pushing up inflation, which has already exceeded the Bank of Japan's target.

It has also eroded the real wages of ordinary households, even though the stock market and exporters have benefited from it.

Three different tools have now failed to fix the problem, and Japan's options are running out.