Recently, I’ve been keeping an eye on the topic of the Japanese yen and found the exchange-rate trend over the past more than ten years genuinely quite interesting. From 2012’s 80 yen to 1 US dollar, it kept sliding to around 160 by 2024, setting a 32-year low—behind this, there’s a story worth sorting out carefully.

To explain why the yen has ended up this way, we need to start with the major earthquake in 2011. The earthquake and the tsunami dealt a huge blow to Japan’s economy, and the Fukushima nuclear power plant accident only made matters worse. As a result, Japan needed to import more oil and energy, foreign-exchange spending surged, and at the same time tourism and agricultural exports took a hit, causing the yen to start weakening.

By the end of 2012, Shinzo Abe rolled out the famous “Abenomics.” Then in April 2013, the Bank of Japan carried out an unprecedented large-scale quantitative easing policy. At the time, the new central bank governor, Haruhiko Kuroda, said he would take every possible measure, including buying bonds and ETFs, injecting into the market the equivalent of 1.4 trillion US dollars in two years. The result was that the stock market reacted well, but the yen depreciated by nearly 30% in just two years.

What’s interesting is that in 2016, the yen actually strengthened. At that time, the Bank of Japan announced a negative interest rate policy. Concerns about a weak global economy sparked risk-aversion sentiment, driving money into the yen. On top of that, the Brexit referendum caused panic in markets, and the yen—as a traditional safe-haven currency—was bought in large amounts. The exchange rate even rose above the 100-yen-per-dollar level.

However, the turning point came in 2021. The US Federal Reserve began tightening monetary policy, while the Bank of Japan remained highly accommodative, creating a huge interest-rate differential. Investors then began large-scale carry trades—borrowing yen at low interest and buying dollar assets with higher yields—so downward pressure on the yen kept growing.

2023 to 2024 is a key turning point. After Ueda Kazuo, the new central bank governor, took office, he began hinting that policy could change. As the inflation rate climbed to above 3.3%, the Bank of Japan raised interest rates in March and July 2024, bringing the rate up to 0.25%. But that wasn’t enough. By July 2024, the yen hit the bleakest moment in nearly 30 years: the exchange rate broke below the 161 yen per 1 US dollar mark and reached near the historical low for the yen.

The main reason for this sharp depreciation is the policy divergence between the US and Japan. To combat the most severe inflation in 40 years, the Federal Reserve aggressively raised interest rates to above 5%. While the Bank of Japan began making adjustments, its pace far lagged behind. In addition, the Russia-Ukraine war led to a surge in energy prices. As a resource-importing country, Japan’s trade deficit widened, further exacerbating yen depreciation.

Entering 2025, the situation became even more complicated. In the first half of the year, the yen rebounded strongly at one point. The US dollar to Japanese yen rate fell from 158 to around 140. The reasons were that the Bank of Japan raised interest rates to 0.5%, the highest level in 17 years, while the Federal Reserve began cutting rates. But in the second half, the picture reversed again. Although the interest-rate differential between the US and Japan theoretically narrowed, Japan in essence still had negative interest rates, so investors continued to favor borrowing yen to buy dollar assets. On top of that, the new prime minister’s continuation of a broad fiscal stimulus policy sparked concerns about Japan’s public finances, and Trump’s policies brought expectations of “Trump inflation,” which supported the US dollar—so the yen started weakening again.

In the end, the yen’s long-term predicament is not just a monetary policy issue; at a deeper level, it’s about Japan’s structural challenges: high debt, low growth, population aging, and a high dependence on imported energy. These factors shape the market’s long-term expectations for the yen.

As for where the yen will go in the future, it largely depends on the policy choices of the central banks of the US and Japan. With the yen currently at historical lows, it does create opportunities for some investors, but forex trading itself involves significant risks and should be handled with caution.