I recently looked at the 10-year chart of the Japanese yen against the US dollar and noticed a very interesting phenomenon. The yen slid from 80 per 1 USD in 2012 down to around 155 in May this year. This isn’t just a simple exchange-rate fluctuation—it’s basically a “big drama” of monetary policy.

As for the root cause of the yen’s depreciation, it has to go back to the time when Shinzo Abe took office. At the end of 2012, he rolled out “Abenomics,” and in 2013 the Bank of Japan began large-scale easing. After Haruhiko Kuroda took office, he delivered tough statements, saying that within two years they would inject an amount of money equivalent to 1.4 trillion USD. So what happened? The stock market rose, but the yen depreciated by nearly 30% within two years. This was the first acceleration phase of yen depreciation.

The real turning point came in 2021. The Federal Reserve began tightening monetary policy, while the Bank of Japan continued to stick to ultra-loose policy. The interest-rate differential between Japan and the US widened sharply. That’s when carry-trade activity kicked in: people borrowed the low-interest yen to buy high-yield US dollar assets, instantly increasing downward pressure on the yen. By 2024, things became even more extreme—US interest rates surged to above 5% to fight inflation, while the Bank of Japan still hovered around 0.25%, expanding the interest-rate spread to an absurd degree.

July 2024 was a key moment. The yen briefly fell below 161 per 1 USD, hitting a 32-year low. During that period, the Russia-Ukraine war pushed up global energy prices. As Japan is a major resource-importing country, its trade deficit widened, further intensifying the trend of yen depreciation. To be honest, the market sentiment at the time was basically: sell yen, buy dollars—there weren’t many people betting on the Japanese currency.

However, by 2025, the situation became more complicated. Early in the year, the Bank of Japan raised interest rates to 0.5%, and the Fed also started cutting rates. The yen rebounded for a time, with USD/JPY falling from 158 to around 140. But this appreciation didn’t last long; it reversed starting in the second quarter. The new prime minister, Sanae Takaichi, continued a loose fiscal policy. The market then began to worry about Japan’s fiscal condition, and supported by Trump-era tariff and tax-cut policies that bolstered the US dollar, the yen returned to a depreciation trajectory.

Now, the USD/JPY rate is back in the 155–158 range. On the surface, it looks like a game of monetary policy, but the deeper problem is Japan’s own structural difficulties—high debt, low growth, population aging, and reliance on energy imports. As long as these issues aren’t resolved, pressure for yen depreciation will keep building.

From an investment perspective, the yen at these historically low levels does create some opportunities for foreign-exchange trading. But it’s important to be clear that the yen’s future direction depends largely on the policy choices of the central banks in the US and Japan, as well as changes in the global economic situation. If you’re considering participating in yen-related trades such as USD/JPY, you must put a risk-control plan in place—after all, with exchange-rate swings this dramatic, it’s easy to get trapped without a thorough strategy.