With the full implementation of new regulations on the export of key domestic items, Japan’s proud high-end manufacturing system has faced a severe impact, and the core production lines of semiconductors and automobiles are on the verge of shutting down.
Under multiple pressures, the Japanese yen’s exchange rate continued to lose ground, and the Japanese government’s massive bailout failed.
The lifeline of the industry has been precisely grasped, the currency defense line has completely collapsed, and Japan has officially fallen into a double economic predicament. The high-pressure situation has made Japan unbearable.
From the end of May to early June 2026, the Japanese yen exchange rate against the US dollar broke through the 160 mark many times, setting a new stage low.
In order to stabilize the exchange rate and stabilize market confidence, Japan’s Ministry of Finance urgently intervened and invested 11.73 trillion yen in a single month to rescue the market, setting a new historical record for the scale of investment.
However, after huge amounts of money poured into the market, it only briefly stabilized the market. The exchange rate soon fell back again. This round of rescue operations, which cost 73.6 billion US dollars, completely failed in less than a month.
The collapse of the exchange rate is only a superficial crisis. What really hollows out the foundation of Japan’s economy is the large-scale collapse of the local high-end industrial chain.
Affected by China’s export control of key raw materials, more than 2,000 high-tech companies and manufacturing plants in Japan continue to run out of raw material inventories, and supply chain faults have broken out. A large number of small and medium-sized manufacturing companies have been forced to suspend production due to lack of raw materials.
Japan’s leading companies have already experienced an obvious performance crisis.
Shin-Etsu Chemical was constrained by the shortage of core raw materials, and high-end material orders were delayed in delivery, losing a large number of high-quality overseas customers; Fuji Seiko’s revenue shrank significantly, and profits plummeted by more than 80% year-on-year.
Leading Japanese car companies such as Toyota and Honda have significantly reduced the production capacity of high-end models due to insufficient supply of core materials such as silicon carbide and high-purity graphite, and their delivery capabilities in overseas markets have plummeted.
At the same time, Chinese new energy vehicle companies are taking advantage of the trend to seize the blank market, and the global share of Japanese vehicles continues to be eroded.
Many people wonder why the United States and Japan are deeply bound to the alliance system and why they cannot quickly build a backup supply chain to fill the gap.
The core crux is that industrial chain barriers are difficult to break through in the short term.
China currently controls more than 80% of the world’s gallium and germanium refining capacity, and its global dominance of battery-grade spherical graphite has exceeded 90%.
Although European and American countries hold some raw ore resources, they do not have a mature full-process refining industry chain system.
If you want to build complete production capacity from scratch, it will not only take 5 to 10 years, but also require hundreds of billions of dollars in costs. Japanese companies trapped in a raw material crisis simply cannot survive the long window period.
Behind the continued depreciation of the yen and its near-fall, there are deep hidden debt risks that Japan has accumulated over a long period of time.
As of 2026, Japan’s government debt has reached 1,343 trillion yen, and its debt-to-GDP ratio has exceeded 240%, placing it at a very high risk level in the world.
Once the Bank of Japan raises interest rates by 1 percentage point, annual interest payments will increase by 13 trillion yen, and the finances will be directly overwhelmed. This also prevents Japan from substantially raising interest rates.
The long-term zero interest rate policy has given rise to huge cross-border arbitrage transactions.
The huge interest rate difference between the United States and Japan has attracted US$4 to US$5 trillion in capital to carry out arbitrage operations through Japanese yen lending.
At the same time, in order to avoid the risk of currency depreciation, Japanese domestic companies and people concentrated on exchanging U.S. dollar assets, further impacting the Japanese yen exchange rate.
The Japanese government bucked the trend and rescued the market. Its essence was to fight against market rules and capital trends. Failure was already doomed.
At present, the Japanese economy has fallen into an unsolvable vicious circle.
The sharp depreciation of the yen has pushed up the cost of all imported raw materials, energy, and commodities. The number of domestic small and medium-sized enterprise closures has reached a ten-year high. The real purchasing power of residents has been experiencing negative growth for 30 consecutive months, and people’s consumption has continued to shrink.
Looking at the export side, the export dividends that could have been brought about by currency depreciation cannot be realized due to restrictions on core raw materials and insufficient production capacity.
Import costs are soaring, exports are unable to increase revenue, and two-way internal friction continues to undermine Japan’s economic foundation.
The market is extremely pessimistic about Japan’s subsequent trend.
Most institutions believe that Japan will most likely not survive until the end of the year and will be forced to raise interest rates to rescue the market.
However, raising interest rates will directly detonate the huge debt risk of 1,343 trillion yen, and will most likely trigger a triple-death in the stock market, bond market, and foreign exchange market, triggering comprehensive financial turmoil.
At the real economy level, multinational companies have already heeded risks in advance and accelerated the withdrawal of assembly orders, production lines, and supply chains from Japan.
At present, the United States is focusing on the return of its own capital and harvesting global funds, turning a blind eye to Japan’s plight and will not provide a full rescue.
This round of precise control is not intended to shut down the Japanese economy overnight, but to accurately puncture the industrial hollowing-out bubble that Japan relies on unlimited money printing and financial easing to cover up.
The myth of Japan’s high-end manufacturing, which has long relied on external blood transfusions and false prosperity, has been completely shattered. Japan will also be forced to return from the world’s first-tier economy to an ordinary regional economy, completely ending the era of decades of industrial hegemony.
