I’ve been keeping an eye on the recent trend of the Japanese yen—it’s definitely quite interesting. Not long ago, the yen slid to around 159, and the effective exchange rate hit a 53-year low. The market has been asking where the opportunity for yen appreciation lies.

To be honest, the yen is still quite difficult to strengthen meaningfully right now. The US–Japan interest-rate differential is still there for everyone to see, and the pace of Bank of Japan rate hikes is much slower than what the market had expected. On top of that, Japan’s government fiscal expansion and instability in the Middle East that’s pushing up oil prices are continuing to weigh on the yen. Carry trades are still ongoing as well: low-interest yen is being borrowed in large amounts to invest in US dollar assets, and selling pressure has been persistent.

However, there’s a key turning point here. The market widely expects the Bank of Japan to raise interest rates in June, increasing the policy rate from 0.75% to 1.0%. If that really happens, the US–Japan interest-rate spread will start to narrow, which would support yen appreciation. Some institutions say the probability of a rate hike has already risen to 76%.

In the long run, for the yen to truly turn things around, it still needs to rely on internal economic reforms in Japan. The positive cycle of wages and prices needs to be firmly established, and economic growth momentum must improve noticeably—only then can the yen have real underlying strength. In the short term, USD/JPY may still fluctuate between 152 and 160, but if the June rate hike proceeds smoothly, the upside room for the yen will gradually open up.

JPMorgan is more pessimistic, believing it could fall to 164 by year-end. But some institutions expect it to stay around 160. In plain terms, this cycle still depends on the Bank of Japan’s resolve and the performance of the US economy. If the Federal Reserve cuts rates faster than expected, the yen’s rebound potential will be greater. Right now, it’s simply a matter of waiting to see how the June meeting decides—and that should be an important watershed.