Recently, I’ve been watching the trend of the USD/JPY exchange rate and noticed an interesting phenomenon. Just after entering 2026, the yen has started to weaken again, with USD/JPY fluctuating between 152 and 160, approaching the 160 mark by the end of April. I looked into it and found that the real effective exchange rate of the yen has hit a nearly 53-year low, which is quite alarming.

Looking closely at the underlying reasons, it mainly stems from several structural factors at play. First, the interest rate differential between the US and Japan has been widening. Although the Bank of Japan raised rates to 0.75% last year, it’s still far below US interest rates, leading to continued arbitrage trading. Second, Japan’s government faces heavy fiscal pressure. The new government’s large-scale stimulus policies have actually increased the debt burden. Additionally, with the instability in the Middle East, the cost of importing crude oil into Japan has risen. These factors combined have pushed the yen downward.

Market institutions generally hold a bearish view on the yen. JPMorgan predicts the yen could fall to 164, while BNP Paribas forecasts it could dip to 160. However, a turning point might occur at the Bank of Japan’s June meeting. If they actually raise rates to 1.0%, the US-Japan interest rate gap will narrow, potentially attracting some arbitrage capital back.

In the long term, for the yen to truly reverse its decline, internal reforms in Japan are essential. Economic growth momentum needs to significantly improve, and a healthy cycle of wages and prices must be established for the yen to have real support. In the short term, it still depends on the pace of central bank policies and how global risk sentiment evolves.