Japan on the brink of historic yen collapse, major bank warns

Major bank sounds alarm over the yen's future

Strategist Makoto Noji at SMBC Nikko Securities warns that Japan may be on the edge of a historic weakening of the yen. This is reported by ForexLive, citing the Wall Street Journal. Noji points to two converging risks: a prolonged oil shock caused by tensions around the Strait of Hormuz, and a looser fiscal policy that further undermines the credibility of the Japanese currency.

Three years of cost-driven inflation have already put severe pressure on Japanese households. Noji argues that additional demand stimulus under these circumstances will only accelerate price growth and worsen the yen's position.

Intervention alone cannot replace structural adjustment — what is needed is a combination of rate hikes, fiscal restraint, and active market intervention.

A three-part remedy no one wants to take

Noji is clear that no single measure is sufficient. He recommends a coordinated approach consisting of further government yen-buying interventions, a rate hike from the Bank of Japan, and a hard stop to fiscal expansion.

The core of the problem is that Japan cannot control the exogenous Hormuz shock. Every attempt to ease cost pressures on households through fiscal relief carries a direct currency cost that interventions must then offset — a dynamic that, according to Noji, is becoming untenable.

Katayama pledges action

Finance Minister Katayama stated on Tuesday that authorities will take "appropriate measures" in currency markets if the situation demands it. The wording provides brief support for the yen, but analysts are well aware that verbal intervention has limited effect when underlying fundamentals are pushing in the opposite direction.

It is worth noting that Japan recently carried out its largest single period of currency intervention ever, illustrating the gravity of the situation. The fact that SMBC Nikko still considers it insufficient underscores the scale of the challenge facing authorities.

Structural weaknesses in the background

Behind the immediate crisis lie structural problems that have been building over time. Japan's national debt exceeds 260 percent of GDP, the country is struggling with persistent trade deficits and weakened competitiveness. The Bank of Japan has kept interest rates at ultra-low levels for years, contributing to a marked interest rate differential relative to countries such as the United States — and thus sustained pressure on the yen.

This forms the backdrop for what Noji describes as a dangerous threshold: a point at which structural weaknesses, an external shock, and political paralysis can reinforce one another.

Not irrelevant for Nordic investors

For Norwegian and Nordic investors with exposure to Japan through funds or direct investments, this is a risk factor worth monitoring. Yen depreciation affects the returns on Japanese assets measured in Norwegian kroner, and a potential collapse in the yen would send shockwaves through global currency and equity markets. The oil price — in which Norway as a major exporter has a direct stake — is also a central part of the dynamic: a sustained Hormuz shock will affect the Norwegian economy as well.

Sources: SMBC Nikko Securities via the Wall Street Journal, as referenced by ForexLive/InvestingLive, 2 June 2026. Statements from Finance Minister Katayama are reproduced via the same source and have not been independently verified by 24markets.