Recently, I looked back at the JPY exchange-rate trends over the past decade and found some pretty interesting market logic. From 2012, when 80 yen exchanged for 1 US dollar, to 2024, when it weakened to around 160, what has the yen gone through over these more than ten years?

The story of the yen’s depreciation, it turns out, starts with Shinzo Abe taking office. In late 2012, he proposed the “Abenomics” package, and the following year the Bank of Japan announced an unprecedented large-scale asset purchase program. At the time, newly appointed Governor Haruhiko Kuroda vowed to inject the equivalent of 1.4 trillion US dollars into the market within two years. So what happened? The yen depreciated by nearly 30% within those two years. That’s also why many people say that while the accommodative policy stimulated the stock market, it was a nightmare for the yen.

The real turning point that pushed the yen to historical lows came in 2021, when the United States began tightening monetary policy. The moment the Federal Reserve announced tapering, the market started playing the interest-rate differential trading game—borrowing low-interest yen and then buying high-yield US dollar assets. How big was this type of arbitrage? It was enough to push the yen sharply lower all the way down.

By 2023, when Japan’s new central bank governor, Kazuo Ueda, took office, the market sensed the taste of a policy shift. At that time, Japan’s CPI was already above 3.3%, the highest level since the oil crisis in the 1970s. Although Ueda said inflation was not sustained, the market understood one thing: the era of easy money might really be coming to an end.

2024 became a key inflection point. The Bank of Japan raised interest rates by 10 basis points in March and by 15 basis points in July, which in the past decade was almost unthinkable. Even so, in July the yen still hit a historic level of extreme depreciation in nearly 30 years—at one point, the exchange rate broke 161 yen per 1 US dollar. The logic behind it is simple: the Federal Reserve is raising rates to more than 5% to fight the most severe inflation in 40 years, while the Bank of Japan remains in an ultra-easy stance, causing the interest-rate differential to widen to its extreme. On top of that, the Russia-Ukraine war pushed up energy prices. As Japan is a major resource-import country, its trade deficit widened, naturally increasing downward pressure on the yen.

What’s interesting is that in 2025 the yen experienced a “V-shaped reversal.” Early in the year, the Bank of Japan raised rates to 0.5%, a 17-year high. The Federal Reserve also began cutting rates, and the yen-US interest-rate gap started to narrow. As a result, the yen rebounded strongly— the US dollar to yen exchange rate fell from 158 in January to around 140 in April. But this rally is essentially a classic pattern of “policy tightening convergence plus narrowing interest-rate differentials,” and it does not mean Japan’s economic fundamentals have truly improved.

In the second half of the year, the situation reversed again. Even if the Federal Reserve cuts rates three times during the year, and even if the Bank of Japan raises rates twice, Japan is still in negative interest-rate territory. Investors still prefer to borrow low-interest yen to buy high-yield US dollar assets. In addition, new Prime Minister Sanae Takaichi continued the “Abenomics”-style massive spending approach, and the market began to worry about Japan’s fiscal situation. Trump’s tariffs, tax cuts, and fiscal expansion policies have also been interpreted as “Trump-style inflation,” and these have supported the US dollar index. By year-end, the US dollar to yen exchange rate returned to the 155 to 158 range, and even hit a ten-year low.

In the end, the fundamental reason the yen has weakened is Japan’s own structural difficulties—high debt, low growth, an aging population, and a high reliance on imported energy. On top of that, the policy pace has not been very consistent, and the market has maintained a bearish stance on the yen for the long term. The appearance of the yen’s historical lows reflects the concentrated eruption of these deep-seated problems.

From an investment perspective, the yen at its historical lows may indeed present some opportunities. However, forex trading involves significant risks, so you need to carefully formulate trading strategies and risk-control plans. As for the yen’s future direction, to a large extent it still depends on the monetary-policy choices of the central banks in the United States and Japan, and on whether Japan can truly solve those structural problems.