I recently looked at ten years of data on the Japanese yen’s trend and found that the story during this period is actually well worth paying attention to. From it sliding from around 80 yen in 2012 to near 160 last year, the Japanese yen went through quite intense fluctuations, and the logic behind it is quite interesting.

First, let’s talk about a few key turning points in the yen’s movement over these more than ten years. At the end of 2012, Abe took office and proposed the so-called “Abenomics.” The following year, the Bank of Japan began large-scale easing. At that time, Haruhiko Kuroda said they would use every means to stimulate the economy—resulting in the yen depreciating by nearly 30% within two years. During this period, the general trend of USD/JPY was basically one-way upward.

By 2016, things reversed. Earlier that year, the Bank of Japan implemented negative interest rates. With global markets on edge, along with the “black swan” event of Brexit, investors flocked to the yen, a traditional safe-haven currency. The exchange rate even surged to around 100-101—this was arguably the strongest period for the yen in recent years.

But the real turning point came in 2021. The US Federal Reserve began sending signals that it would tighten monetary policy, while the Bank of Japan was still sticking to an ultra-loose policy. This caused the US-Japan interest rate differential to widen sharply, with a large amount of carry trades flowing in. Investors borrowed low-interest-rate yen to buy higher-yield US dollar assets, and the yen’s depreciation pressure arrived all at once.

Last year was a watershed. The yen’s movement went through a dramatic “V-shaped reversal.” In the first half of the year, the Bank of Japan raised interest rates to 0.5%, the highest level in 17 years. At the same time, the Federal Reserve started cutting rates. As the US-Japan interest rate spread narrowed noticeably, the yen appreciated across the board. USD/JPY fell from around 158 in January to around 140 in April. But this round of appreciation was essentially just a short-term effect of policy tightening, not a sign that Japan’s economic fundamentals had truly improved.

In the second half of the year, the situation reversed again. Although the Federal Reserve cut rates three times throughout the year and the Bank of Japan raised rates twice, the real interest rate differential was still there, and Japan’s structural economic problems remained unresolved. After the new prime minister took office, Japan also rolled out a “big-spending” fiscal policy. The market then began to worry about Japan’s fiscal situation. Meanwhile, inflation expectations driven by Trump’s policies warmed up and supported the US Dollar Index. As a result, the yen’s trend turned downward again, and by year-end, USD/JPY returned to the 155-158 range, even hitting a ten-year low.

Looking closely at the deeper logic behind the yen’s trend, you’ll find that Japan is actually facing long-term structural difficulties: high debt, low growth, an aging population, and dependence on energy imports—along with the central bank’s inconsistent policy pace. With all that, the market has been broadly bearish on the yen in the long run. Short-term policy adjustments may bring volatility, but they cannot change the overall trend.

So, with the yen currently trading near historical lows, its future direction will largely depend on the policy choices of the central banks in the US and Japan. If the US keeps interest rates relatively high, and Japan still can’t effectively resolve its structural issues, there is still a fairly high chance that the yen will continue to face downward pressure. However, this also means that for traders who can tolerate risk, yen-related trading opportunities are indeed worth paying attention to.