Recently, I looked back at the ten-year trend of the USD/JPY historical exchange rate and realized just how outrageous the yen’s depreciation has been. From 80 yen per 1 dollar in 2012, it kept sliding to around 160 by the end of 2024, setting a new 32-year low. The story behind this is far more complex than the headline numbers.

I feel that many people have only seen a superficial shift in central bank policy, but not Japan’s structural economic problems. To be more specific, after Shinzo Abe took office in 2012 and rolled out that “Abenomics,” the following year the Bank of Japan began large-scale easing. At the time, Haruhiko Kuroda said they would inject an amount equivalent to $1.4 trillion to stimulate the economy—yet within two years, the yen had depreciated by nearly 30%. This is not an accident; it is a direct consequence of policy.

What’s truly interesting is the turning point in 2024. The Bank of Japan finally started raising interest rates, increasing them by 10 to 15 basis points in March and again in July. But at that time, the U.S. Federal Reserve began considering rate cuts instead. This created an awkward situation: Japan was hiking rates while the U.S. was cutting them, yet the USD/JPY historical exchange rate continued to weaken. By July, the yen had at one point slid to the historical extremes of 161–162—really the worst moment in nearly 30 years.

The logic behind it is actually quite simple. When U.S. interest rates are above 5% and Japan’s rates are near zero, investors will definitely sell low-interest yen to buy high-interest dollars. How big is the scale of this arbitrage? The yen depreciates how fast accordingly. On top of that, Japan is a major resource-importing country, and the surge in energy prices caused by the Russia-Ukraine war directly widened Japan’s trade deficit, further weighing on the yen.

Interestingly, in 2025 the yen went through a “V-shaped reversal.” Early in the year, the Bank of Japan raised rates to 0.5%, and the Fed also started cutting rates, narrowing the interest rate gap between the U.S. and Japan. The yen rebounded from 158 to around 140. But in the second half of the year, it reversed again: the USD/JPY historical exchange rate weakened once more, even hitting new lows. What is the reason? Japan’s real interest rate differential is still favoring the yen—Japan remains in negative interest rates, and people are still more willing to borrow yen to buy dollar-denominated assets.

Adding to this, newly appointed Prime Minister Hayata Takachiho continued the expansive fiscal policy of “big handouts,” and the market began to worry about Japan’s fiscal sustainability. Even when the Bank of Japan raised rates in December to 0.75%, the highest level since 1995, the market viewed it as a contradictory policy—pressing the accelerator and the brake at the same time. At the same time, the “Trump inflation” stemming from expectations of Trump’s policies also supported the U.S. dollar index.

In the end, the yen’s weakness comes down to Japan’s own structural predicament: high debt, low growth, population aging, and a heavy reliance on imported energy. Even if the central bank raises rates, the market is still bearish on the yen over the long term.

Looking back at this decade of USD/JPY historical exchange rate movements, I think the most worth paying attention to is not short-term fluctuations, but the economic fundamentals and underlying differences reflected behind them. With the yen currently at historic lows, there may indeed be opportunities for those looking to participate in forex trading—but the prerequisite is understanding these deeper drivers, rather than simply chasing a rebound in exchange rates. Forex trading involves significant risks, so you need to develop sound strategies and risk-control plans.