Recently, I reviewed the exchange rate trends of the Japanese Yen over the past decade and found that during this period, the Yen has undergone a complete transformation from a "safe-haven currency" to a "historic depreciation," which is worth a deep analysis.

It's a bit ironic to say, but at the end of 2012, the Yen against the US dollar was still around 80, and at that time, everyone thought the Yen would continue to appreciate. But since then, the Yen has embarked on a long depreciation journey, reaching around 160 in 2024, hitting a 32-year low. What exactly happened over these more than ten years?

The key turning point was actually in 2013. After Shinzo Abe took office, the Bank of Japan launched an unprecedented large-scale easing policy, with new Governor Haruhiko Kuroda openly stating that all possible measures would be taken, injecting the market with the equivalent of $1.4 trillion in currency within two years. While this move stimulated the stock market, the Yen depreciated nearly 30% in just two years.

What truly accelerated the Yen’s depreciation was the huge divergence in monetary policies between Japan and the US. Starting in 2021, the Federal Reserve began tightening policies, raising interest rates to over 5%, while the Bank of Japan continued to stick to ultra-loose policies. This widening interest rate gap directly led to large-scale arbitrage trading, with investors selling low-interest Yen to buy high-interest US dollars. Coupled with the surge in energy prices caused by the Russia-Ukraine war, Japan’s trade deficit, as a resource-importing country, continued to widen, further increasing downward pressure on the Yen.

July 2024 was a critical moment. The Yen exchange rate once fell below 161, hitting a 30-year low. At that time, the situation was that the US was aggressively raising interest rates to combat the most severe inflation in 40 years, while the Bank of Japan was still hesitating. It wasn’t until March and July 2024 that the Bank of Japan raised interest rates by 10 and 15 basis points respectively, but by then, it was too late—the market had already priced in Yen depreciation expectations.

Interestingly, in 2025, the Yen’s trend experienced a "V-shaped reversal." Early in the year, the Bank of Japan raised interest rates to 0.5%, a 17-year high, while the Federal Reserve started cutting rates, narrowing the interest rate differential. The Yen rebounded sharply in the short term, with USD/JPY dropping from 158 to around 140. But this appreciation was essentially a "policy convergence + narrowing interest spread" move, not a sign that Japan’s economic fundamentals had truly improved.

In the second quarter, the situation reversed again. Although the Fed cut interest rates three times throughout the year and the Bank of Japan raised rates twice, the real interest rate differential still persisted—Japan remained in negative interest territory, so investors still preferred borrowing Yen to buy US assets. Plus, the new Prime Minister, Sanae Yoshihide, continued Abe’s large fiscal stimulus policies, raising concerns about Japan’s fiscal health. The USD/JPY then rebounded over 12-13%, even hitting a ten-year low by year-end.

A closer look at the Yen’s underlying issues reveals that they are far more than just short-term policy divergences. Japan faces structural challenges such as high debt levels, low growth, an aging population, and heavy reliance on energy imports. Coupled with inconsistent policy steps, the market has long been bearish on the Yen. After Trump took office, tariffs, tax cuts, and fiscal expansion policies were interpreted as "Trump’s inflation," further supporting the US dollar index.

From a long-term perspective of twenty years, the Yen’s exchange rate trend actually reflects Japan’s relative economic decline. In 2016, the Yen still appreciated to around 100, driven by global risk aversion triggered by Brexit, which caused capital to flow into the Yen. But now, the Yen has long lost its safe-haven aura.

Looking ahead, the Yen’s future trend largely depends on the policy choices of the US and Japanese central banks. Currently, the Yen at its historic lows does present some trading opportunities, but only if one evaluates risks rationally. The long-term depreciation trend of the Yen is unlikely to reverse in the short term unless Japan’s economic fundamentals substantially improve or the US economy experiences a clear recession.