Recently, I’ve been watching the trend of the Japanese yen, and I’ve realized that the yen’s story over the past couple of decades is actually quite thought-provoking. From having once been a “safe-haven paradise” to now continuously hitting new lows, what happened in between?

To explain why the yen has been depreciating all the way down, we need to start with the big earthquake in 2011. That earthquake, along with the tsunami and the Fukushima nuclear power plant accident, forced Japan to purchase large amounts of US dollars to buy oil and cover energy supply gaps. At the same time, tourism and agricultural exports were also hit, causing a sharp decline in foreign-exchange income. This was the starting point of the yen weakening.

By the end of 2012, Shinzo Abe took office and rolled out “Abenomics.” The following year, the Bank of Japan, under Haruhiko Kuroda, announced an unprecedented large-scale quantitative easing policy. The central bank said it would inject an amount of money equivalent to $1.4 trillion within two years. The result was that the yen depreciated by nearly 30% within just two years. This round of easing did stimulate the stock market, but the price was the yen’s continued depreciation.

Interestingly, in 2016 the yen actually rebounded once. Early that year, the central bank implemented negative interest rates, and concerns about a weakening global economy drove funds into the yen, a traditional safe-haven currency. On top of that, panic sparked by the Brexit referendum caused the yen to rise to around 100 yen per US dollar at one point, marking a high level in recent years.

But the real turning point came in 2021. The US Federal Reserve began tightening policy, while Japan’s interest rates remained extremely low. As a result, a large number of investors started conducting carry trades—borrowing yen to buy high-yield assets. This kind of arbitrage trade put enormous downward pressure on the yen.

After 2022, the situation took a sharp turn for the worse. To deal with the most severe inflation in 40 years, the Federal Reserve aggressively raised interest rates, which at one point exceeded 5%. Meanwhile, the Bank of Japan continued to insist on ultra-loose policy, with interest rates close to zero. This policy divergence caused the US-Japan interest rate differential to widen rapidly, prompting investors to sell yen and buy dollars in large numbers. In addition, the Russia-Ukraine war pushed energy prices higher. As Japan is a major resource-importing country, its trade deficit kept expanding, and yen depreciation pressure kept growing.

In July 2024, the yen hit a historical low. USD/JPY briefly broke through the 161–162 level, which was the lowest level in 32 years.

Entering 2025, the situation became even more complex. At the start of the year, the Bank of Japan raised rates to 0.5%, a 17-year high. For a time, the market thought a rate-hike cycle was coming, and the yen rebounded to around 140. But this appreciation didn’t last long, because the Federal Reserve began cutting rates, which actually expanded the US-Japan interest rate differential again. On top of that, after the new prime minister took office and continued the large-scale “money-spraying” policy, the market grew concerned about Japan’s fiscal situation. Even when the central bank raised rates to 0.75% in December, a new high since 1995, the market still couldn’t see that Japan’s economy was truly improving.

In the final analysis, the yen’s long-term weakness reflects Japan’s own structural difficulties: high debt, low growth, an aging population, and a heavy reliance on imported energy. These problems can’t be solved in the short term, so the market remains bearish on the yen in the long run. Going forward, the yen’s direction will largely depend on the policy choices of the US and the Bank of Japan—especially whether the US-Japan interest rate differential will widen again. With the yen currently at a historical low, this may be an opportunity for some traders, but forex markets are volatile, so you need to be cautious in your execution.