Recently, I’ve noticed a pretty interesting phenomenon: many people are discussing how the depreciation of the Japanese yen affects traveling abroad. To be honest, the logic behind it is much more complex than it appears on the surface.

First, let’s talk about what the Japanese yen actually is. The yen (JPY) is Japan’s official currency, issued and managed by the Bank of Japan. Don’t be fooled by how ordinary it seems now; its history is quite tumultuous. Starting from the Meiji Restoration in 1871, Japan established a modern monetary system, experiencing the gold standard, silver standard, fixed exchange rates, and finally shifting to a floating exchange rate in 1973. Today, the yen has become the third-largest reserve currency in the world, after the US dollar and euro, and it also holds a place in the International Monetary Fund’s Special Drawing Rights basket.

So why has the yen recently depreciated so sharply? I’ve observed a few main reasons. First is the policy of the Bank of Japan. Over the years, Japan has maintained an ultra-loose monetary policy, combining quantitative and qualitative easing along with yield curve control, basically flooding the market with liquidity. The policy interest rate is even negative (-0.1%), which directly pushes the yen downward.

More critically, there’s the interest rate differential issue. Since 2022, the Federal Reserve has aggressively raised interest rates, totaling a 375 basis point increase, while the Bank of Japan has stuck to its easing stance. This contrast has created a huge interest rate gap between Japan and the US. Think about it: borrowing yen at low interest to buy high-yield dollar assets is extremely profitable, so capital keeps flowing out of Japan.

There’s also an interesting phenomenon called “Mrs. Watanabe.” It’s a nickname in the international financial markets for Japanese retail investors, especially housewives. Why are so many involved in forex trading? It’s mainly because domestic interest rates in Japan are so low that they need to find higher returns elsewhere. These investors borrow low-interest yen, convert it into higher-yield foreign currencies, forming a significant market force.

A weaker yen is actually good for travelers. For example, suppose a product is priced at 10,000 yen in Japan. If the exchange rate drops from 0.23 TWD/JPY to around 0.45 TWD/JPY, the cost in New Taiwan Dollars decreases from NT$43,478 to NT$22,222, saving nearly 49%. That’s why more people have been traveling to Japan recently.

However, it’s important to note that the yen’s status as a safe-haven currency isn’t as stable as many think. Traditionally, the yen has been considered a safe-haven currency because Japan is the world’s largest creditor nation, holding substantial overseas net assets, and the yen is highly liquid. But in extreme situations—such as when policies diverge sharply or there’s a severe trade deficit—this safe-haven function can break down. The period from 2022 to 2023 is a typical example, with persistent downward pressure on the yen.

A noteworthy event occurred at the end of 2022. The Bank of Japan suddenly widened the tolerance band for 10-year government bond yields from ±0.25% to ±0.5%. The market widely interpreted this as a move toward reducing bond purchases. Once this signal was out, market expectations shifted toward yen appreciation, as Japanese capital invested overseas might start flowing back.

Ultimately, understanding the logic behind the yen’s depreciation boils down to grasping the Bank of Japan’s easing policies, the widening of the US-Japan interest rate gap, and changes in market capital flows. These factors intertwine and determine the yen’s trajectory. For those planning to travel to Japan or invest in Japanese assets, having this knowledge can be quite useful.