Recently, I’ve been analyzing 10 years of historical data on the Japanese yen exchange rate and have discovered some quite interesting market logic.

Speaking of which, the yen has depreciated from 80 to 1 USD at the end of 2012 to 160 to 1 USD in 2024. This process actually reflects profound changes in Japan’s economy and global monetary policies. Many people may not know that there are several key turning points behind this.

First, the 2011 Great East Japan Earthquake, which, along with the Fukushima nuclear disaster, directly disrupted Japan’s energy supply and exports, leading to a decline in foreign exchange income, causing the yen to weaken. But what truly changed the game was when Abe took office in 2012. His “Abenomics” combined with the Bank of Japan’s large-scale easing policy in 2013, when Kuroda Haruhiko announced plans to inject the equivalent of $1.4 trillion into the market within two years, resulted in the yen depreciating nearly 30% over that period.

By 2016, there was a very interesting reversal. That year, the Bank of Japan implemented negative interest rates, and the global economy’s weakness triggered risk aversion. Coupled with the panic from the Brexit referendum, capital flooded into the yen, a traditional safe-haven currency, and the exchange rate even broke through 100 yen per USD.

But after 2021, the story changed again. The Federal Reserve began tightening monetary policy, raising interest rates from zero to over 5%. Meanwhile, the Bank of Japan persisted with ultra-loose policies, creating a huge interest rate differential. Investors started large-scale arbitrage trading, borrowing low-interest yen to buy high-yield dollar assets, causing the yen to depreciate sharply. In July 2024, it even hit a nearly 32-year low, falling to 161-162 yen per USD.

Moving into 2025, the situation became more complex. Early in the year, the Bank of Japan raised interest rates to 0.5%, the highest in 17 years, while the Fed also started cutting rates. The yen temporarily strengthened, with USD/JPY dropping from 158 to around 140. But in the second quarter, the situation reversed again. Although the US-Japan interest rate gap theoretically narrowed, Japan still maintained negative interest rates, so arbitrage activity persisted. Plus, the new prime minister continued expansive fiscal policies, raising concerns about Japan’s fiscal health. The dollar index was also supported by Trump’s policies, and the yen depreciated back to the 155-158 range.

My observation is that the core logic of the yen’s exchange rate over the past 10 years is the divergence in US and Japanese monetary policies. When the Fed aggressively raises rates and the Bank of Japan remains accommodative, the yen depreciates; when their policies converge, the yen appreciates. But a deeper issue is Japan’s structural challenges—high debt, low growth, aging population, energy import dependence—these long-term factors make the market bearish on the yen.

Currently, the yen is near its historical lows, which indeed creates some opportunities for forex traders. However, forex trading itself is highly volatile and requires caution. Some are starting to focus on yen-related trading opportunities at this level, but only with proper risk management. It’s worth continuing to monitor the upcoming policy moves of the Bank of Japan and the Federal Reserve.