The Decline of the Japanese Yen

In foreign exchange, people trade with currency pairs consisting of 2 currencies. The Japanese Yen (¥) is the dominating currency of Japan that was established in the late 19th century, established by the Meiji government. In recent years however, the Japanese Yen has faced significant decline. Especially following April of 2022, where the value peaked at ¥120 against the $USD, the Japanese Yen currently sits at ¥150 as of June of 2025, highlighting nearly a 30% loss against the dollar over a decade. The depreciation of the Japanese Yen is a product of the various economic challenges that Japan faces

A macroeconomic factor that has influenced the value of the currency is the monetary policy implemented by the Bank of Japan. Monetary policy is a central bank implemented policy that concentrates on the supply of money, and a nation’s rate of interest. The Bank of Japan has implemented an ultra-loose monetary policy that includes extremely low interest rates as an attempt to boost economic activity such as investment. However, another macroeconomic factor that did not favour the implementation of such monetary guidelines is the rate of inflation faced by Japan. This decision was made due to weak economic growth, and volatile macroeconomic indicators that has further pressured the Yen.

Following a decline in economic activity, recent trade data shows a 1.7% year by year export decline in May of 2025. Factors that have influenced this decrease in exports include the U.S. tariffs and weak global demand. Furthermore, imports fell tremendously due to low domestic consumption, or aggregate demand; another such factor that keeps inflation rates volatile.

Another indirect factor that has caused ripples in market sentiment is the geopolitical tensions that occur globally. The Israel-Iran conflict in June of 2025 proves that the Yen has failed to strengthen during geopolitical tensions, which has dropped it to 2.4% against the dollar. This further proves how market sentiment prioritises economic fundamentals over safe-haven flows, which has placed immense pressure on the Japanese Yen.

Bibliography

1. https://www.fxstreet.com/news/japanese-yen-slides-to-over-one-month-low-against-a-firmer-usd-202506230243

2. https://www.cnbc.com/2025/06/25/japans-inflation-above-target-for-over-3-years-but-where-is-boj.html

3. https://www.motilaloswal.com/news/stocks/96573#:~:text=Japan's%20Nikkei%20share%20average%20fell,prices%2C%20which%20threaten%20Japan's%20economy.