Planning a Japan trip from the UAE? Why the yen suddenly became more expensive

Dubai: UAE residents travelling to Japan or paying for yen-priced goods will get less for their dirhams after the United States and Japan stepped into currency markets to lift the Japanese currency from a four-decade low.

The dirham’s peg to the US dollar means it moves with the American currency against the yen. When the dollar weakens against the yen, each dirham also buys fewer yen, increasing the dirham cost of hotels, meals, shopping and other expenses priced in the Japanese currency.

The dollar had traded above 163 yen before the intervention, but fell below 160 late last week and dropped to around 156 on Monday. The yen briefly strengthened to 155.23 per dollar before easing to 156.81 by midafternoon in Tokyo.

Why the US and Japan stepped in

Japan and the United States jointly bought yen for the first time since 1998 after the currency fell to 163.99 per dollar in July, its weakest level since 1986.

Japan’s Finance Minister Satsuki Katayama said the action was intended to address disorderly movements in the currency.

“This joint action countered excessive volatility and disorderly movements in the Japanese yen in recent months,” Katayama said.

The scale of the operation has not been disclosed, although both governments have indicated that they are prepared to intervene again if the yen resumes its decline.

US Treasury Secretary Scott Bessent said Washington “will not hesitate to participate in further joint intervention,” while Japanese officials also said additional action remained possible.

What a stronger yen means in the UAE

Travellers exchanging dirhams for yen will receive less Japanese currency than they did when the dollar was trading near its recent peak.

A purchase costing 100,000 yen would have required about Dh2,230 when the dollar stood at 164 yen. At an exchange rate of 156 yen, the same amount would cost around Dh2,354, before bank or exchange-house charges.

The difference amounts to roughly Dh124 on a 100,000-yen payment, with the impact becoming more noticeable across hotel bills, longer holidays and large shopping purchases.

Japanese goods priced directly in yen may also become more expensive in international markets if the currency maintains its gains, although retail prices in the UAE will also depend on import contracts, hedging arrangements and distributor costs.

Why the yen had fallen so far

The yen has been weakened by the gap between interest rates in Japan and the United States, along with high oil prices and concerns about Japanese government spending.

The Bank of Japan raised its benchmark interest rate to a 31-year high of 1% in June and kept it unchanged last week. US interest rates remain considerably higher at between 3.5% and 3.75%.

That difference encourages investors to borrow money cheaply in yen and move it into overseas assets offering higher returns. The strategy, known as a carry trade, creates additional selling pressure on the Japanese currency.

Japan’s dependence on imported energy has also added to the pressure. A weaker yen raises the local cost of oil and other imports, pushing up prices for Japanese households and businesses.

Why Washington joined

A stronger yen can make American goods cheaper for Japanese buyers by reducing their cost in yen terms, which may support US exports.

Washington also has an interest in limiting any large sale of US government bonds by Japan to finance its currency intervention. Japan is the largest overseas holder of US Treasuries, and heavy sales could add pressure to American bond markets.

US President Donald Trump described Washington’s participation as a “signal of friendship” and said the move was “good for the world economy.”

Will the yen remain stronger?

Previous interventions have produced immediate currency movements, although their longer-term impact has depended on interest rates, inflation and wider economic policy.

The yen’s direction will continue to be influenced by the Bank of Japan and the US Federal Reserve, with markets watching whether either central bank changes interest rates in the coming months.

Further intervention remains possible if the yen returns to the levels that prompted last week’s action. Until then, UAE residents with upcoming Japan-related spending will face a stronger currency than they did during July.

- With inputs from agencies.