People who have been paying attention to the yen exchange rate recently should have noticed that the Japanese currency’s performance over the past few years really has been somewhat unusual. As the world’s third-largest reserve currency, the yen’s rise and fall actually reflects a very interesting economic phenomenon—one particular group’s behavior stands out as especially worth noting: the so-called “Mrs. Watanabe.”

First, let’s talk about the yen itself. It is the fiat currency issued by the Bank of Japan, and it has had a modern monetary system since 1871 during the Meiji Restoration. After going through the gold standard, the silver standard, and the Bretton Woods system, it finally established a floating exchange rate system in 1973. Today, the yen accounts for about 5.17% of global foreign exchange reserves, firmly holding the third spot, only after the US dollar and the euro.

So why does the yen continue to depreciate? There are three core reasons. First is the Bank of Japan’s super-loose policy—quantitative and qualitative easing combined with yield curve control, which keeps the 10-year government bond yield pinned at an extremely low level. Such measures create persistent downward pressure on the yen. Second is the interest-rate differential issue. The Bank of Japan maintains a negative policy rate, while the Federal Reserve began aggressive rate hikes in 2022, cumulatively raising rates by 375 basis points. With such a large difference in interest rates, funds naturally flow toward the United States. Third is the self-fulfilling nature of market expectations—when speculators broadly view the yen as likely to fall, that very psychological expectation reinforces the depreciation trend.

What’s interesting is that behind the yen’s depreciation there is a large retail-investor group helping to fuel it—this is what “Mrs. Watanabe” truly refers to. “Mrs. Watanabe” does not refer to any specific person; it is a nickname used by international financial markets for Japanese retail investors—especially housewives. Why are they so active? The reason is simple: Japan’s long-term low-interest-rate environment, or even a negative interest-rate environment, prevents them from earning returns through traditional savings. So these “Mrs. Watanabes” take part in carry trades—borrowing low-interest yen and then buying foreign currency assets with higher yields. How large is this group? In October 2022, when the Japanese government intervened in the foreign exchange market, the yen briefly rebounded and then fell back again; the market widely believed this was the result of these retail investors quickly closing out their US dollar positions.

Understanding the meaning of “Mrs. Watanabe” and their typical behavior is essentially understanding the collective power of retail investors in today’s financial markets. When this group’s trading direction is aligned, how much impact can they have on exchange rates? That question has been fully reflected in the yen’s performance over the past few years.

From a practical application standpoint, yen depreciation is indeed good news for people traveling to Japan. Suppose an item is priced at 10,000 yen in Japan. During a period of higher exchange rates (1 TWD = 0.23 yen), the purchase cost would be about 43,478 TWD. In a recent period of lower exchange rates (1 TWD = 0.45 yen), the purchase cost drops to about 22,222 TWD. That means the cost savings are close to 49%. This is also why the number of people going to Japan for travel has been increasing recently.

However, it’s important to note that the yen’s traditional safe-haven attribute is not something that will last forever. Japan really is the world’s largest creditor nation, with massive overseas net assets, which theoretically could attract capital back when risks flare up. But when monetary policy becomes extremely divergent and the trade structure is seriously imbalanced, this safe-haven quality may fail. The market performance in 2022-2023 clearly demonstrates this.

Going back to December 2022, the Bank of Japan made an unexpected decision—widening the tolerance band for fluctuations in the 10-year government bond yield from ±0.25% to ±0.5%. The market widely interpreted this as the central bank testing a tightening of liquidity supply, implying that the degree of future easing might be somewhat less. This marginal change in policy expectations, together with expectations that the US-Japan interest rate differential might narrow, once led the market to speculate that large amounts of overseas-allocated funds held by Japanese investors could potentially return.

Understanding the essence of the yen, its evolution, and the current logic driving it is not only helpful for individual asset allocation, but also key to grasping the global economic and financial landscape. Especially once you understand the behavioral logic of the “Mrs. Watanabe” group, you’ll realize that the influence of retail investors in global financial markets is far greater than most people imagine.