I have been watching the trend of the Japanese yen recently. To be honest, the yen's depreciation over the past decade or so has been quite dramatic. From 2012, when 80 yen was equivalent to 1 US dollar, it has depreciated all the way to around 160 in 2024, hitting a 32-year low. What exactly has happened behind this? I’ve summarized the evolution of the yen’s sharp decline and found that it’s actually the result of multiple factors stacking up.

Let’s start from 2011. The Great East Japan Earthquake on March 11, along with the subsequent Fukushima nuclear disaster, directly impacted Japan’s economy. Japan had to buy more US dollars to import oil and energy, while radiation concerns caused a significant drop in tourism and agricultural exports, reducing foreign exchange income. The yen began to weaken. This was the starting point of the yen’s major decline.

The real turning point was at the end of 2012 when Shinzo Abe launched “Abenomics.” Coupled with the Bank of Japan’s large-scale easing policy in 2013, when Haruhiko Kuroda took office and announced plans to inject the equivalent of $1.4 trillion into the market through bond and ETF purchases to stimulate the economy. The result? The stock market responded positively, but the yen depreciated nearly 30% over two years.

By 2016, something interesting happened. The Bank of Japan announced a negative interest rate policy, and signals of a sluggish global economy triggered risk aversion, causing funds to flow into the yen. Plus, the Brexit referendum caused panic, and the yen appreciated to around 100-101, reaching a recent high. This was a rare breather for the yen.

But starting in 2021, the situation reversed again. The Federal Reserve began tightening monetary policy, with US interest rates rising sharply, while the Bank of Japan persisted with ultra-loose policies. This widening interest rate differential attracted large-scale arbitrage trading—investors borrowed low-interest yen to buy higher-yielding US assets, putting further downward pressure on the yen.

2024 was a pivotal year. Although the Bank of Japan raised interest rates by 10 basis points in March and 15 in July, the Fed’s rate hikes were even more aggressive. The US-Japan interest rate gap continued to widen, and the Russia-Ukraine war caused energy prices to soar. As Japan is a major importer of resources and its trade deficit widened, the yen depreciated to a historic low of 161-162. This was the most direct reason for the yen’s sharp decline.

Entering 2025, the situation became even more complex. Early in the year, the Bank of Japan raised rates to 0.5%, and the market initially expected the yen to appreciate, with USD/JPY falling from 158 to 140. But by the second quarter, the dollar started rebounding, and now it’s back in the 155-158 range. The core issue is that, although Japan is raising rates, the real interest rate differential remains negative, as Japan still maintains negative interest rates. Plus, the new prime minister’s continued expansionary fiscal policies have raised concerns about Japan’s fiscal health. Even if the BOJ hikes to 0.75%, it won’t change the overall trend.

At the same time, policies from Trump—such as tariffs and tax cuts—are seen by markets as signals of inflation, further supporting the dollar. Meanwhile, Japan’s structural problems—high debt, low growth, aging population, and heavy reliance on energy imports—continue to make the market bearish on the yen long-term.

In summary, the main reasons for the yen’s decline are: Japan’s economic weakness combined with prolonged monetary easing, coupled with the Fed’s aggressive rate hikes, creating a huge interest rate arbitrage space. The future trend of the yen will largely depend on the monetary policy choices of both Japan and the US. Currently at a historic low, the yen does present some opportunities for forex trading, but trading itself carries significant risks, so strategies and risk management must be carefully planned.