I’ve been keeping a close eye on the yen’s price action recently and noticed some new changes this month. To be honest, the yen’s move lower has really come as a surprise—its depreciation has been ongoing since last year, and it hasn’t fully stabilized yet.

The US dollar versus the Japanese yen is currently trading back and forth in a range of 152 to 160, and it even pushed close to the 160 level at the end of last month. As for the fundamental reasons, it mainly comes down to a few core factors. First, the US–Japan interest rate differential has been widening. The Bank of Japan’s pace of rate hikes is much slower than the market expects, while US interest rates are still maintained at relatively high levels. This keeps carry trades in place. Investors borrow Japanese yen to invest in US dollar assets, so the yen is naturally sold off.

Second, Japan’s new government’s fiscal expansion policies are also increasing downward pressure on the yen. After Shinobu Takaichi took office, Japan continued with the same approach as Abe’s economic policies—rolling out large-scale “sprinkling money” to stimulate the economy. The result is a buildup of government debt, and the market’s concerns about Japan’s fiscal risks have also been rising. On top of that, instability in the Middle East has kept oil prices elevated. As Japan is an energy-importing country, it has been directly hit: the trade deficit has widened, and all of these factors are dragging on the yen.

The Bank of Japan is also in a somewhat awkward position. Originally, the market expected a rate hike in May, but the conflict in the Middle East disrupted the timing. Ueda Kazuo’s remarks at the G20 made it clear that geopolitical risks are weighing on global financial markets, which has led the Bank of Japan to take a more cautious stance. However, based on the quarterly report, the central bank still suggests that a rate hike in June or July remains possible. Currently, the market-implied probability of a June rate hike has already risen to 76%.

Looking ahead to the yen’s future trend, the key is how these factors develop. If the Bank of Japan really manages to raise rates in June and narrows the US–Japan interest rate differential, the yen could see a rebound. But in the long run, for the yen to truly reverse its slump, it still needs to rely on Japan’s domestic economic reforms. Only when wages and prices form a healthy feedback loop and economic growth momentum improves significantly can the yen’s strength be genuinely established.

At the moment, institutional forecasts differ quite a lot. JPMorgan is more bearish, saying the yen could fall to 164 by year-end. BNP Paribas, however, expects it to be around 160. The consensus is that in the short term, the yen’s price action should remain weak and range-bound, unless unexpected political or economic variables emerge.

My own view is that the real turning point for the yen’s trend should be in the central bank meeting later this month. If a rate hike is delivered, and it is supported by inflation data and economic growth performance, the yen may get a chance to “catch its breath.” But if the central bank once again stays on hold, the US–Japan interest rate differential will continue to widen, carry trades will keep going, and the downward pressure on the yen will be very difficult to ease.

For friends who want to participate in forex trading, it’s indeed a good time to pay more attention to these indicators for the yen’s trend. Inflation CPI, GDP data, and central bank statements are all key to judging the yen’s direction. While the yen looks weak in the short term, over the long term it should return to a reasonable valuation. If you’re interested, you can track this opportunity on legitimate platforms—just remember to manage risk carefully, because market volatility is still quite high.