Recently, I've seen many discussions about the trend of USD/JPY exchange rates, and I realize that the story of the Japanese yen over the past decade is actually quite worth a deep dive. From 2012's 80 yen to around 160 in 2024, what has the yen experienced?

I’ve summarized the key milestones over these more than ten years and found that there are deep economic logic behind the yen’s movement. The 2011 earthquake had a huge impact on Japan, coupled with the subsequent nuclear plant accidents, Japan urgently needed to buy large amounts of U.S. dollars to purchase oil, which directly weakened the yen. But what truly changed the game was the economic policies introduced after Abe took office in 2012.

At that time, the Bank of Japan implemented unprecedented large-scale easing in 2013, with Haruhiko Kuroda promising to use all means to stimulate the economy, injecting the equivalent of $1.4 trillion in money within two years. This decision caused the yen to depreciate nearly 30% in just two years. You see, the USD/JPY exchange rate started to accelerate upward from that point.

In 2016, there was an interesting reversal. That year, the Bank of Japan announced negative interest rates, and the signals of a sluggish global economy drove funds into the yen as a safe-haven asset. Coupled with Brexit panic, the yen once rose to a high of 100-101. But this strength didn’t last very long.

The real turning point came in 2021. The Federal Reserve started hinting at tightening policies, while the Bank of Japan remained committed to ultra-loose policies. This created a perfect arbitrage environment: investors borrowed low-interest yen and bought high-yield U.S. dollar assets. From then on, the USD/JPY trend has been upward, with increasing pressure.

By 2023, the new Bank of Japan Governor Ueda Kazuo took office and began signaling possible policy changes. Inflation exceeded 3.3%, and core CPI broke 3.1%, reaching new highs since the 1970s. The market started to expect Japan to adjust its easing policies.

2024 became a pivotal year. The Bank of Japan raised interest rates by 10 and 15 basis points in March and July, respectively, bringing the policy rate to 0.25%. Meanwhile, the Fed’s rate hikes were more aggressive, with rates exceeding 5% at times. The widening interest rate differential between the U.S. and Japan put enormous downward pressure on the yen, reaching historic levels. In July, USD/JPY even broke through 161-162, hitting a 30-year low.

Interestingly, after entering 2025, the USD/JPY trend experienced a V-shaped reversal. The yen strengthened sharply at the start of the year, rebounding from 158 to around 140, mainly because the Bank of Japan raised interest rates to 0.5%, and the Fed also started cutting rates. But this appreciation was essentially short-term volatility driven by policy convergence, not a sign that Japan’s economy had truly improved.

After the second quarter, the situation reversed again. The dollar rebounded over 12-13% against the yen from its lows, returning to the 155-158 range by year-end. The reasons are complex: although the Fed cut rates three times throughout the year and Japan raised rates twice, Japan still remained in negative interest rate territory, maintaining arbitrage incentives. Plus, with the new prime minister continuing expansive fiscal policies, markets began to worry about Japan’s fiscal health. The “Trump-style inflation” expectations triggered by Trump’s policies also supported the dollar.

Ultimately, the fundamental reason for the yen’s long-term weakness isn’t short-term policies but Japan’s structural issues: high debt, low growth, aging population, and dependence on energy imports. These long-term challenges keep the market bearish on the yen.

Currently, the USD/JPY exchange rate is at a historic low, which indeed presents some opportunities for forex trading. But the forex market is highly volatile and risky. If you really want to trade, you need to establish a clear strategy and risk management plan, and avoid blindly following the trend. The future direction of the yen largely depends on the policy choices of the BOJ and the Fed.