I've been closely watching the yen's trend recently. To be honest, this round of depreciation has been quite intense. As of mid-May, USD/JPY was still fluctuating between 152 and 160, and the effective exchange rate has hit its lowest in nearly 53 years. The story behind this is actually quite complex.

First, let's talk about the core issue of the US-Japan interest rate differential. Although the Bank of Japan raised rates to 0.75% in December last year, reaching a 30-year high, the Federal Reserve remains more hawkish, so this interest rate gap persists. Everyone is engaging in arbitrage trading—borrowing low-interest yen to invest in high-yield dollar assets—leading to continuous yen selling. I noticed that even when the central bank raises rates, market expectations for future moves remain cautious, and confidence is recovering very slowly.

The domestic situation in Japan is also not optimistic. The new government has launched large-scale fiscal stimulus to boost the economy, but this means increased debt issuance and rising deficit risks. Markets worry about fiscal premiums, which further depress the yen. Additionally, geopolitical tensions in the Middle East are driving up energy costs, with crude oil prices high, trade deficits widening, and economic fundamentals weakening—all unfavorable for yen appreciation.

A key turning point might be in June. The central bank initially planned to raise rates in April, but the Middle East situation disrupted that plan. However, according to a Reuters survey, nearly two-thirds of economists expect the central bank to raise rates to 1.0% by the end of June. If that happens, the US-Japan interest rate differential will narrow, making the yen more attractive, and arbitrage capital could flow back. This is a recent focus of my attention.

Regarding future forecasts, JPMorgan's Junya Tanase is the most pessimistic, predicting the yen could fall to 164 by the end of this year. Parisha Saimbi from BNP Paribas also expects it to drop to 160. Their logic is that global risk sentiment is still relatively optimistic, arbitrage trading will continue, and the Fed may be more hawkish than expected, keeping the dollar strong.

But there's an interesting point here. Historically, the yen has a safe-haven attribute—when global crises occur, people buy yen for safety. If stock markets and other risk assets correct, and arbitrage positions are unwound, the yen could sharply appreciate. So in the short term, the range of 152 to 158 might persist, but in the long term, the yen's appreciation still depends on internal structural reforms in Japan, improved economic growth momentum, and a healthy wage-price cycle.

For investors, I recommend paying attention to four key factors: first, inflation CPI trends; second, economic data like GDP and PMI; third, central bank policies and Ueda Kazuo's statements; and fourth, international market conditions, especially the Fed's moves. If you want to participate in forex trading, be sure to manage risk carefully, assess your risk tolerance, and consult professionals if needed. In the short term, the yen may remain weak, but don't forget to prepare for long-term allocation.