Recently, I noticed an interesting phenomenon: the yen has been steadily falling, and I was thinking about whether I should take the opportunity to buy some yen. But after looking into it, I realized the story behind it is much more complicated than I initially thought.

Let's start with the current situation. The USD/JPY is fluctuating between 152 and 160, almost hitting the 160 mark last month. The Bank of Japan has kept interest rates at 0.75% since December last year, and in January and March this year, they held meetings without any changes. The market is now speculating whether they will raise rates in June. From what I’ve seen, the yen’s movement is mainly tied to the US-Japan interest rate differential. US rates are still significantly higher than Japan’s, so many investors are borrowing yen to invest in dollar-denominated assets, which is why the yen keeps being sold off.

Besides the interest rate gap, Japan’s government’s fiscal expansion is also putting pressure on the yen. The new government has introduced large-scale stimulus measures, but that means increased debt issuance and rising deficit risks, which erodes market confidence in Japan. Coupled with the instability in the Middle East, high oil prices are raising import costs, expanding the trade deficit, all of which are weighing on the yen.

Looking at the long-term trend of the yen, the key still depends on when the Bank of Japan will actually start raising rates. Analysts at JPMorgan are more pessimistic, predicting the yen could fall to 164 by the end of the year. Meanwhile, BNP Paribas forecasts it will stay around 160. However, I personally think the real turning point will be the June central bank meeting. If they raise rates to 1.0% as expected, it might attract some arbitrage capital to flow back.

In my opinion, the yen will probably remain weak and consolidate in the short term, but in the long run, it will inevitably return to its proper level. To truly reverse the yen’s trend, Japan needs internal reforms—sustainable economic growth, healthy cycles of wages and prices are fundamental. I’m currently in a wait-and-see mode, watching the June central bank actions. If necessary, gradual buying isn’t a bad idea—after all, in the long run, the yen will eventually appreciate.