The Japanese yen trade-weighted index falling highlights a broad decline in exchange rates against major currencies.

While headlines are dominated by the Japanese yen hitting a four-decade low against the US dollar, a broader indicator of yen strength is also sending worrying signals to Japan. The nominal effective exchange rate index of the Bank of Japan - measuring the yen against a basket of trade-weighted currencies - has already dropped to a historic low this year, reflecting the yen's weakness against the euro, pound, and other major Asian currencies. The depreciation of the yen highlights that its weak performance is not limited to the US dollar, exacerbating concerns for investors about input-driven inflation and declining purchasing power in Japan. The weakening trade-weighted yen has raised import costs for products from more trade partner countries, making the Bank of Japan's efforts to normalize monetary policy more complex without harming economic recovery.