Opening your currency exchange app recently and seeing the “great value” of the Japanese Yen exchange rate, does it make you eager to plan your next trip to Japan or an investment in Yen assets? That’s right, the Yen recently depreciated past the 155 mark against the US dollar, hitting a multi-decade low and touching a sensitive nerve in global financial markets. Many are asking, what are the reasons for the Yen’s depreciation? Is now the best time to exchange currency? In this article, from the perspective of a seasoned investor, I will peel back the layers to reveal the essence, from the Federal Reserve’s tough stance to the Bank of Japan’s cautious shift, providing a comprehensive analysis of this exchange rate drama that affects our wallets and offering practical currency exchange strategies for 2025.
To understand the Yen’s weakness, you can’t just look at Japan; you must cast your eyes to the other side of the Pacific—the United States. The protagonists in this currency battle are the two most influential central banks in the world: the US Federal Reserve (Fed) and the Bank of Japan (BOJ). Every decision they make is like applying force to opposite ends of a seesaw, determining the relative strength of the US dollar and the Japanese Yen.
Frankly, the Yen’s recent weakness is largely not its fault but a result of its opponent being too strong. The US has shown strong economic resilience post-pandemic, especially with stubbornly high inflation data (core CPI), forcing the Fed to implement its most aggressive interest rate hike cycle in decades. Although the market once anticipated a rate cut in early 2025 towards the end of 2024, persistent inflation has kept the Fed’s stance “hawkish.”
The logic is simple:
As of early 2025, the 10-year US Treasury yield is still above 4%, while Japan’s equivalent government bond yield is less than 1%. This huge “interest rate differential” is the core reason the Yen is struggling to recover. As long as the Fed doesn’t signal a rate cut, the strong dollar pattern is unlikely to change, and the Yen will naturally remain under pressure.
In contrast to the Fed’s hawkishness, the Bank of Japan has been a moderate “dove” for the past decade. To combat long-term deflation (i.e., a continuous fall in commodity prices), the BOJ has long maintained an ultra-loose monetary policy, even implementing “negative interest rates” at one point, which is equivalent to paying banks to borrow money. However, times have changed. Global inflation has also reached Japan, and the nominal wage growth in 2024 hit a nearly 30-year high, finally giving the BOJ a glimmer of hope for emerging from deflation. In early 2025, the BOJ symbolically ended its negative interest rate era, seen as the first step towards policy “normalization.” But this step has been incredibly difficult. Because Japan’s economic recovery is not yet on solid ground, the central bank fears that raising rates too quickly could extinguish the hard-won economic spark. Therefore, its attitude remains quite cautious, which has dampened market expectations for Yen appreciation.
💡 Recommended Article
Want to learn more about the operations and risks of forex trading? Recommended reading
Looking ahead, the 2025 Yen exchange rate forecast will revolve around the following three core variables. Any movement in them could trigger sharp fluctuations in the Yen’s exchange rate.
This is the most important indicator determining the medium-to-long-term trend of the Yen. The market’s focus has shifted from “Will Japan raise interest rates?” to “When will the US cut interest rates?”. Once the Fed sends a clear signal of a rate cut, the interest rate differential between the US and Japan will narrow. This will significantly reduce the appeal of dollar assets, prompting some carry trade funds to flow back to Japan, becoming the strongest driving force for the Yen’s appreciation.
“Shunto” refers to the annual spring labor-management wage negotiations in Japan. Its outcome is seen as a key barometer for whether Japan’s inflation can be sustained. If the 2025 “Shunto” results in an average wage increase of over 5%, it will solidify market expectations for the Bank of Japan to continue raising rates, providing solid fundamental support for the Yen. Conversely, if wage growth falls short of expectations, it could make the BOJ’s path to tightening full of uncertainties.
In the past, due to Japan’s ultra-low interest rates, the Yen became the world’s primary “funding currency.” This means international speculators would borrow cheap Yen to invest in other high-yield assets (like US tech stocks). According to the Bank for International Settlements (BIS), the scale of such carry trades once reached trillions of dollars. As Japan’s interest rates begin to rise slowly, increasing borrowing costs, these carry trades will start to “unwind”—selling off overseas assets and converting them back to Yen to repay loans. This process will trigger huge demand for the Yen and could cause a rapid surge in its exchange rate in a short period.
Faced with sharp exchange rate fluctuations, there is no absolute good or bad; it all depends on your position. This historic Yen depreciation is a case of “some are happy, some are sad” for different groups.
| Stance | Impact of Yen Depreciation (Higher Exchange Rate Number) | Impact of Yen Appreciation (Lower Exchange Rate Number) |
|---|---|---|
| Tourists/Students going to Japan | ✅ Major Boon: The same amount of home currency can be exchanged for more Yen, making shopping, accommodation, and tuition cheaper. | ❌ Major Drawback: Overall cost of visiting Japan increases. |
| Japanese Export Companies (e.g., Toyota) | ✅ Major Boon: Products become more competitive in overseas markets, and overseas profits swell when converted back to Yen. | ❌ Major Drawback: Products become more expensive, potentially affecting sales and overseas market share. |
| Japanese Import Companies (e.g., Energy) | ❌ Major Drawback: The cost of importing raw materials and energy rises sharply, which may be passed on to consumers, triggering domestic inflation. | ✅ Major Boon: Import costs decrease, helping to stabilize domestic prices. |
| Overseas Investors (buying Japanese stocks/real estate) | ✅ Major Boon: Can buy the same Japanese assets for less money, presenting an excellent entry opportunity. | ❌ Major Drawback: The entry barrier for assets becomes higher, reducing their appeal. |
This is probably the question everyone is most concerned about: Can I buy Yen now? My answer is, it depends on your “purpose” and “timeline.”
If you are preparing for a trip to Japan within the next year or two, the current exchange rate is undoubtedly very attractive. But don’t adopt a “bet on the bottom” mentality, as no one can accurately predict the lowest point of the exchange rate. The most prudent strategy is to “buy in batches.” For example, you can set a budget and divide it into 3-5 parts, exchanging some money periodically or whenever the rate hits what you consider a good price. This can effectively average out your costs and avoid the risk of exchanging all your money at a relatively high point.
If you are optimistic about Japan’s economic recovery and want to treat the Yen as a long-term investment asset, there’s more to consider. In addition to the basic principle of buying in batches, you should pay closer attention to the three key factors we mentioned earlier. Especially when the USD/JPY exchange rate touches psychological thresholds like 160, the likelihood of intervention by Japanese authorities increases significantly. At the same time, closely track the conclusions of the Fed’s rate meetings and the policy statements of the Bank of Japan, as these are the fundamental signals that will determine a trend reversal.
💡 Recommended Article
To build a robust investment portfolio, you need to understand more diverse tools besides forex. Recommended reading
HK & US Stock Trading Hours and Fee Calculation, Master Overseas Investing in 2025 with One Guide!
This is a common misconception. First, let’s clarify that when we say the “Yen exchange rate is higher,” it usually means 1 US dollar can be exchanged for more Yen (e.g., rising from 150 to 160). In this case, it represents Yen “depreciation.” Conversely, if 1 US dollar can only be exchanged for 140 Yen, the exchange rate number is lower, which means the Yen is “appreciating.” So, there’s no absolute good or bad; it entirely depends on your role. You can refer to the table above to determine the pros and cons for yourself.
In addition to bank counters or online banking, there are now many more convenient channels to check real-time exchange rates. You can directly search “USD/JPY” or “CNY/JPY” on Google to see the market mid-rate. Furthermore, major financial websites like Bloomberg and Reuters, as well as professional charting software (like TradingView), provide very detailed real-time quotes and technical charts suitable for more professional investors.
When the Yen depreciates too quickly, Japan’s Ministry of Finance (the BOJ’s superior authority) may order the central bank to “intervene in the currency market.” This means selling large amounts of US dollars and buying Yen in the market to quickly boost the Yen’s value. Such interventions usually cause violent market fluctuations, potentially causing the Yen to surge by several percentage points in a single day. However, the effect of intervention is often short-lived. If the underlying fundamental factors, like the US-Japan interest rate differential, do not change, the exchange rate will eventually return to a path determined by market forces. Therefore, intervention can be seen as a short-term “brake,” not a long-term “steering wheel.”
In summary, the current Japanese Yen exchange rate is at a historic turning point, driven by the policy struggle between two giants: the US Federal Reserve and the Bank of Japan. The strong US dollar and the huge US-Japan interest rate differential are the main causes of the Yen’s depreciation, while Japan’s own wage growth and monetary policy normalization are key to supporting the Yen’s future potential. For the general public, whether you are a tourist planning to shop in Japan or an investor seeking asset growth, understanding these underlying macroeconomic factors is far more important than guessing short-term fluctuations. Remember, there is no perfect time to exchange currency, only the strategy that best suits your needs. I hope this article helps you see the situation clearly and make the wisest financial decisions.
*The content of this article is for sharing and reference purposes only, and does not constitute professional investment advice. As individual circumstances and needs vary, you may contact the Cashback Island team or consult your financial planner for professional advice.
