Recently, those paying close attention to the yen's movement should be able to feel that the yen's depreciation has been quite aggressive. From the beginning of the year until now, the USD/JPY has fluctuated between 152 and 160, and the real effective exchange rate has hit a nearly 53-year low. Interestingly, the logic behind this is quite complex, not just a matter of central bank policies.

First, let's talk about the most straightforward factor—the US-Japan interest rate differential. U.S. interest rates remain high, while the Bank of Japan has been relatively cautious about raising rates. This leads to continued active arbitrage trading, with everyone borrowing low-interest yen to invest in higher-yielding U.S. dollar assets. As long as this interest rate gap exists, the yen will continue to face selling pressure. Plus, Japan's new government has introduced large-scale fiscal stimulus, increasing bond issuance and raising deficit risks, further eroding market confidence in Japan.

But perhaps the most severe factor is the Middle East situation. Japan relies heavily on Middle Eastern oil imports, and the blockade of the Strait of Hormuz directly threatens energy security. Although Japan has strategic reserves for 250 days, high oil prices still push up import costs and widen the trade deficit. This is also why the Bank of Japan chose to hold steady at its April meeting—Middle East risks are too great, and the pace of rate hikes can only be paused for now.

When it comes to central bank policies, this is indeed the core to understanding the yen's trend. Since Japan ended its negative interest rate policy in 2024, the Bank of Japan has taken a bumpy road. In January 2025, rates rose to 0.5%, and by December, they increased again to 0.75%, hitting a 30-year high. But the current question is whether the pace of rate hikes can keep up. The market is now focusing on the June meeting, with expectations of a 76% chance of a rate hike. If rates really rise to 1.0% in June, the interest rate differential will narrow, potentially attracting some arbitrage capital back, which could be a turning point for the yen.

Regarding the future trend of the yen, opinions among institutions vary. JPMorgan is more pessimistic, expecting the yen to fall to 164 by the end of the year. Société Générale expects around 160. Their logic is similar—global risk sentiment is expected to remain stable, arbitrage demand will persist, and the Federal Reserve might be more hawkish than expected, so USD/JPY should continue to fluctuate in a high range in the short term.

However, if you ask me, in the short term, focus on policies and interest rate differentials; in the long term, the key is internal structural reforms in Japan. For the yen to truly turn around, it still depends on improving economic growth momentum and establishing a healthy cycle of wages and prices. Currently, Japan's consumption remains relatively weak, with GDP occasionally showing negative growth, which are all factors constraining the Bank of Japan from further rate hikes.

So, the current situation is this: in the short term, the yen will likely test between 152 and 160. The real turning point may come in June. If the central bank raises rates as expected and there are signs of easing in Middle East tensions, the yen could rebound. But from a longer-term perspective, the yen still has a way to go before reversing its downward trend.

For those interested in forex trading, you can refer to economic indicators like CPI, GDP, PMI, along with central bank statements and international market conditions, to get a rough idea of the yen's trend. The yen also has a history of safe-haven attributes, often being bought during crises, which is another factor worth paying attention to. If you have travel needs, consider buying on dips in batches; investors should decide based on their risk tolerance, and when in doubt, consulting a professional is advisable.