EXPLAINER: What are the consequences of the yen's fall to a 20-year low?

The scale of the move has repercussions for the domestic economy as yen-based import prices are surging at a record annual pace, heaping pressure on household balance sheets.

Below are key questions about what a sliding yen means for Japan's economy and international markets:The yen, the third most-traded currency globally, is now near 134 per dollar after starting 2022 at 115. With the dollar up 16% so far this year, the yen is on track for its biggest annual drop since 2013.While the rest of the world, led by the U.S. Federal Reserve, is raising rates aggressively to tame soaring inflation, the BOJ has doubled down on its easy policy stance.

Given the economy's reliance on exports, Japan has historically focused on arresting sharp yen rises and taken a hands-off approach to yen weakness, which is more difficult because yen-buying requires Japan to draw on limited foreign reserves. Japan's core consumer prices in April were 2.1% higher than a year earlier, exceeding the BOJ's 2% inflation target for the first time in seven years.

Some like John Vail, chief global strategist at Nikko Asset Management, say currency weakness is crucial for Japan's economy to maintain its competitiveness as a secure source of supply-chain diversification.

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